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You did the right thing...being one of the last hold-outs could back-fire. And, as you say, that money could be going to work for you on something else with a higher ROI over the next 3 + years.
The company/CFO made a dumb mistake by not buying these up while they were available at $6, $7, 8 9 10!.
I figure if it does drag on for 3 or 4 years and it gets back to where it was ($25), you are getting a very decent return, especialy when other options don't look that attractive. (Money in the bank at 3%?) The downside is limited, IMHO, as CC and MM will most likely try to exit within that period. Not a clear situation, but probably not as bad as other stuff.
Have decided to take the $16.00 even though I believe it will go higher sometime in the future. (when??) I rationalize taking a loss by thinking I can put the $somewhere else with a shorter term prospect for a gain. I fear the day I see another tender offer for the outstanding shares at $22.00.
I'm out. But my cost basis is much lower. Move on and find the next one.
Most that are reluctant to sell are probably holders at higher levels. But I guarantee that all would have sold if I called them up when the stock was a $6.5 3 weeks ago and said "would you sell your shares for $16?"
As I've said before, the shares are worth more sometime in the future. The timing is poor. But when will they be worth more?
MM and Cerberus can drag this out for at least 3-4 more years.
So you are a holder of SKRUF. Tendering? Undecided?
I anxiously awaiting a call from UBS! I'm not sure what they are getting for their money.
They are paying UBS $0.50 cents per share actually tendered, out of kindness maybe? Or do they feel it might prove difficult to get people to participate? (It might actually just be the case that a bunch of these securities are in large portfolios whose managers might be too distracted to pay attention to them. I bet Lehman must have had a significant amount).
All this has been brought up before. I don't think there is any question why they are offering to redeem shares. They certainly aren't doing it out of the kindness of their hearts.
Why is SRGP making $16.00 offer. On looking at the Sept 30, 2011 notes (#10) to the financial statements the apparent reason for the offer pops out. " During any dividend period, UNLESS THE DIVIDENDS FOR THE CURRENT DIVIDEND PERIOD ON ALL OUTSTANDING PERPETUAL PREFERRED SHARES HAVE BEEN DECLARED OR PAID, NO DIVIDEND MAY BE PAID OR DECLARED ON OUR ORDINARY SHARES and no ordinary shares or other junior shares may be purchased, redeemed, or otherwise acquired for consideration". I speculate this means that when the company turns profitable they will have to pay a 7 to 8 percent dividend to holders of the preferred shares. Now do you think you can make 7 or 8% on the $16.00 per share they are offering???. Don't know when the numbers will turn profitable but I speculate it won't be too long after the major portion of the preferred are removed by the tender offer. Could be at that time they will reduce Amortization of deferred acquision costs and suddenly turn profitable. shortly thereafter they will cash out and throw more than $16.00 pershare to the preferred holders just to get rid of the problem. What say you??
Very good analogy. With one big difference: in this case, you (as homeowner), have decided to call the bank and offer to settle the mortgage at 65 cents on the dollar.
Would the bank accept the offer?
This analogy might explain how I see things.
Five years ago, you paid $300,000 for a house, which is still the value today. Lucky you. You financed 100 percent at 0% interest rate and no maturity date. Lucky you, again.
For some reason, the mortgage company called yesterday and offered to settle the mortgage in full for cash payment of $192,000. What would you do?
I would quickly wire the money. Why? I have just settled a liability for 64 cents on the dollar. My net worth has just increased. The same can be said about the former SKRRF for each preferred share purchased below par.
I don't see how they can "sell the company". That works in the US, but not under "English" law. They can sell the assets, not the company (to sell the company, what they do is sell their shares, in which case the Prefs stay as is).
For whatever it is worth, let me clarify: it were 1,000 shares we were talking about here, I would not have spent a single second on this board. This is for real.
My guess is that they must have been in a blackout period for most of 2010. If you check out the disclosure statement for the SKKRF acquisition the board was engaged in unsolicited offers for a while.
You got it backwards- selling the company piecemeal makes them junior to 8.5% although you can play games with that. Selling the entire company makes them senior.
This is an opportunity for them to create value by buying liabilities below the value on the balance sheet. Crumline dictated the price and they opened up the offer to the rest of the shareholders.
It's not worth buying in the open market- would take too long to buy a meaningful amount and the price would quickly get bid up to these levels regardless because of the lack of offers.
Take the money for your 1000 shares and move on.
Exactly, gentlemen, that is my point: first a low-ball $5 offer nobody (almost) takes, then nothing for 18 months, and then $16, when they could have been buying cheaper than that all along? Why the hurry? And, if they were to be thinking along the lines of "special dividends" and selling the company piecemeal to avoid paying the $120 million Perp Preferred, why offer anything at all? My point is: there is something else happening, and they ain't telling us what it is!
Board approval must have already existed.
While pursuing our run-off strategy, we may from time to time, if opportunities arise, purchase in privately negotiated transactions, open market purchases or by means of general solicitations, tender offers or otherwise, additional amounts of our outstanding debt, non-voting preferred securities, and other liabilities.
Financial Statements 3/31/10 (page 7)
http://www.scottishre.com/pdf/SRGL_2010_Q1_Financial_Statements.pdf
If I was the CFO, I would have made sure it got done. It was a lost opportunity. Over 681,000 shares have traded since the tender offer expired with only a few shares ever trading above $16 per share.
Agreed- would have been easy to get the Board to approve a repurchase program.
They would have certainly been able to buy some shares below $16.
Lack of earlier open market purchases has always confused me.
All valid points but MM and Cerb aren't buying the preferreds the company is. Buying the preferreds immediately increases book value, is a good use of excess cash sitting on the balance sheet which they cannot currently distribute, lowers potential future dividends needed to avoid board representation and/or make a cash distributions, and protects them should they need to convert to equity or liquidation/wind up.
So for all this they are willing to pay a premium to protect their investment. This is a great move by them- I was shocked at the price. I expected a much lower tender offer.
I still am not sure of your position.
Regarding the common, I said 50cts, they paid 30cts. The majority accepted, not much you can do about that. They were able to screw the minority dissenting holders (including yours truly).
What I fail to see here is why they would offer $16 now, if $25 is four or five years into the future (and that assuming that $25 ever materializes). Because they will make 10% on their $16 bucks a share? These are NOT 10% return investors, they aim for more. This is private equity, and the clock is ticking.
Correction: you could sell all of the underlying businesses separately to different owners and not trigger the CIC but like I said this scenario will be avoided by MM and Cerberus.
Regardless, what if MM and Cerb sell a business and want to make a cash dividend? They could pay it out to the equity shareholders after they make 4 dividend payments to preferred shareholders. That's pennies compared to the capital they have tied up.
As MM and Cerb said in their application to the Delaware Insurance Regulatory body- their capital levels are the highest they've ever been in the history of the company. Sure helps when there is $600mm of Mezz equity in front of you.
You can't have a change in control and a liquidation.
A liquidation is the sale of the assets not businesses (ie, they sell the securities, chairs, buildings, etc).
In your scenario you seem to think that a liquidation trumps a CIC. You can't sell a majority of the business and trigger the CIC provision then sell the remaining businesses and say it's a liquidation. In pretty sure MM and Cerberus would have a senior creditor claim on that one.
Regardless, the scenario you paint is something that MM and Cerberus would want to avoid and would do only if it was their only option. That's why I say a higher price is many years away.
Let's not forget who's in charge here- it's MM and Cerberus. They took out the common at about a 1/3rd of what you said it would fetch. This was a great move by them and there was nothing anyone could do to stop them.
And if they were able to do that, and distribute the monies to shareholders, there would be no reason whatsoever to offer the poor Perp Pref holders anything for their useless paper. But they are offering $16. Mmmmm ... maybe something is not quite right with the "partial liquidation" scenario.
Liquidation may occur to a company when management decides that its operations are worth more to shareholders "dead than alive", and proceed to sell off its operations. However, in your scenario, this is only the case if its a total liquidation. There is always the possibility that the firm may decide to keep some of their businesses in operation, and may only liquidate a portion of their subsidaries.
Liquidation: Occurs when a firm's business is terminated. Assets are sold, proceeds are used to pay creditors, and any leftovers are distributed to shareholders.
So, under a Change of Control scenario, the company would owe them $800 million. To pay them, the company would have to liquidate their assets (i.e. the shares of the subsidiary companies), as they would otherwise NOT have $800 million to pay. The liquidation then triggers the preferential treatment of the preferreds.
That is the way I see it.
Riddler, I suggest you look up the legal definitions of liquidation and wind-up.
And if there is a change in control, how do you get to pay $800 million to the holders of the Mezz without liquidating the company or winding it up?
The only case where the 8.5% preferreds are senior is when there is a liquidation or wind up. Both would not result in a change of control. However, you can play games and trigger the CIC as long as 51% if the business is sold.
My belief is that MM and Cerb will not let this happen.
If the Pref's are indeed junior to the Mezz, then everyone should be taking the $16, right?
Sorry, but Yes they are. Liquidation preference on the Mezz Equity (convertible preferred shares) is $791mm as of September 30, 2011. That puts the 8.5% preferreds -$295.6mm out of the money before the preferreds see $0.01 and $372mm before the recovery is greater than $16/share.
If you think otherwise, please explain.
What preferred's are out of the money? Not the ones being bought back.
That's a pretty convincing argument.
Clearly that was a low ball offer and the fact that 5% of the shares were tendered demonstrates that.
The company is in run-off and the preferreds are currently out of the money by a few $100mm including the convertible preferreds liquidation preference. If the company is sold, it will be done in such a way so that the chafe in control provision is triggered.
The business isn't going to generate enough earnings to close that gap anytime soon. Ironically, buying the preferreds at a discount helps. The securities they own will not appreciate enough and when rates go up assuming they are matching durations (which all insurance cos must do) the liabilities and assets will both decline in value.
As I've mentioned before numerous times, MM and Cerberus are looking to maximize their recovery of their $600mm investment. They are going to sit on this until there is no more securities to buyback or no more appreciation in the portfolio.
There is a scenario that is possible where MM and Cerberus convert their shares to common to sell the business, but I think that is likely after 2016. There is the opinion out there that the MM and Cerberus' convertible preferreds aren't convertible in 2016 anymore because there is no ordinary shares outstanding- that's why this could go on longer.
The offer is poorly timed for preferred shareholders. I believe the 10k will have the "going concern" language removed for reasons I will not go I to now. It was also poorly timed because the preferred shareholders get 2 seats on the board and I also believe they would pay out 4 quarters of dividends to avoid the shareholders having a voice.
As I said, I think you may see $25 if a number of things happen but it wont be for a while. Given the uncertainly and illiquidity (which will be worse after the tender) this is a pretty good offer. Unfortunately no one else has been able to explain why this isn't.
The offers were 18 months apart.. What makes you think its gonna take 5 years to see 25?
What's the significance of what they did 18 months ago?
Its been about 18 months since the previous offer..(5 bucks) What makes you think it will be 5 years before we could see 25 ???
It's also important to note that the 15% institutional shareholder (Crumline) sold their entire position in a private transaction at the tender price.
It's apparent that Crumline dictated the price for the tender at the price they were willing to sell.
During the last tender which failed miserably, Crumline's price was $12.
They create value when they buy stuff below par value.
The reason there hasnt been any comments on the pros and cons is because it's kind of a silly question.
Pros:
- if you have a lot of shares you have the ability to sell without pushing down the price
- you are getting a price that is significantly higher than prior trading seen in years
Cons:
- decreased liquidity because float will decrease
- you do not participate in future appreciation
Clearly there is value in the preferred or else the company wouldn't do the tender offer. The question is when will these be worth $25- my answer is 4-5 years which is a 10% IRR.
The company will also book a gain on the discount which will increase the book value which will increase the value of the company.
The company can currently pay dividends- they are no longer in breach of any covenants. But they choose not to and they will not pay a dividend before they need to.
When will they want to pay a dividend? Before they try and pay a special dividend to the equity which they now own.
I find it difficult to understand why they would want to pay $16 for something that costs the company $0. That is, unless they figure it will start to cost them 7.25% a year in dividends. Or maybe it is something else?
No reason.
Just an opportunity to buy $25 for only $16.
Seems like there is not a ground swell of people with Pros and Cons. The first question we need answered is: Under what circumstance must Scruf pay the Dividend. I haven't been reading the financial notes (just a lazy loser) but I speculate that the hedge funds and other new owners are restricted in receiving dividends in some way by the Preferred senior position in dividend payment. If anyone has read up on this it would be helpful to know how desperately "Scottish Re Group" needs to get rid of the Preferred. If we had a handle on that then the decision to tender at $16.00 (or not) would be easier.
Seems like there is not a ground swell of people with Pros and Cons. The first question we need answered is: Under what circumstance must Scruf pay the Dividend. I haven't been reading the financial notes (just a lazy loser) but I speculate that the hedge funds and other new owners are restricted in receiving dividends in some way by the Preferred senior position in dividend payment. If anyone has read up on this it would be helpful to know how desperately "Scottish Re Group" needs to get rid of the Preferred. If we had a handle on that then the decision to tender at $16.00 (or not) would be easier.
What are the pros and cons of tendering versus keeping this??Im leaning towards keeping this and waiting for 25 in a couple of years. Opinions anyone? Thanks in Advance
Of course they have enough money to buy the preferreds but not enough to pay a dividend!!!
This transaction is very smart and timely by Cerberus and MM.
The preferred shareholders currently are permitted to get 2 board seats. I believe mgmt would pay out 4 quarters of dividends if someone attempted to get on the board to prevent the appointment.
There are 4,806,083 SKRUF shares outstanding.
Par value is $120,152,075. At 100 percent participation, the tender would cost $76,897,328 (without transaction costs) and create $43,254,747 in value.
Privately Negotiated Transaction results in $6,760,800 discount.
751,200 x ($25 par - $16 cost) = $6,780,600
At this price it should be highly subscribed.
Scottish Re Group Limited Announces Tender Offer to Purchase for Cash Any and All of its Outstanding Non-Cumulative Perpetual Preferred Shares (2/10/12)
Scottish Re Group Limited (“Scottish Re” or the “Company”) has commenced a cash tender offer to purchase any and all of its outstanding Non-Cumulative Perpetual Preferred Shares, liquidation preference $25 per share (collectively, the “Perpetual Preferred Shares”), other than the Perpetual Preferred Shares that are subject to the Privately Negotiated Transaction described below.
The tender offer is being made pursuant to the Offer to Purchase, dated February 10, 2012 (as it may be amended and supplemented from time to time, the “Offer to Purchase”), and the related Letter of Transmittal, dated February 10, 2012 (as it may be amended and supplemented from time to time, the “Letter of Transmittal” and, together with the Offer to Purchase, the “Offer”), which set forth the full details of the terms and conditions of the Offer. Pursuant to the terms of the Offer, holders of the Perpetual Preferred Shares may tender some or all of their Perpetual Preferred Shares at a purchase price of $16.00 per share. No dividends or any other amounts will be paid to holders of Perpetual Preferred Shares with respect to the Perpetual Preferred Shares purchased pursuant to the Offer.
The Offer is subject to conditions customary for transactions of this type and may be terminated by the Company at any time in its sole discretion.
The Company recently entered into a privately negotiated transaction for the purchase of 751,200 Perpetual Preferred Shares, representing approximately 15.6% of the outstanding Perpetual Preferred Shares, from a third party (the “Privately Negotiated Transaction”). The repurchase of the Perpetual Preferred Shares in the Privately Negotiated Transaction is expected to settle on or about February 14, 2012 and is at the same price as the Offer.
UBS Investment Bank is serving as Dealer Manager and D.F. King & Co. is serving as Tender Agent for the Offer. Brokers and other persons with questions regarding the Offer are encouraged to contact UBS Investment Bank at (203) 719-4210 or toll free at (888) 719-4210. Requests for documents may be directed to D.F. King & Co., the Information Agent, at (212) 269-5550 or toll free (888) 869-7406.
This press release is neither an offer to purchase nor a solicitation of an offer to sell the Perpetual Preferred Shares or any other security. The Offer is made only pursuant to the Offer to Purchase and the Letter of Transmittal. The Offer is not being made to security holders in any jurisdiction in which the making or acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. In any jurisdiction in which the Offer is required to be made by a licensed broker or dealer, it shall be deemed to be made by the Dealer Manager on behalf of the Company.
About Scottish Re
Scottish Re is a global life reinsurance specialist, with its principal executive office located in Bermuda. Its primary operating subsidiaries include Scottish Annuity & Life Insurance Company (Cayman) Ltd., Scottish Re (Dublin) Limited and Scottish Re (U.S.), Inc.
Contacts
Scottish Re
Media and Investor Contact:
Dan Roth, 441-298-4373
Chief Financial Officer
Is 751,200-share trade an indicator?
I think so.
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