Power Corp. is acquiring Power Financial. You should tender your Power Financial shares to the offer.
Blue chip stock Power Corporation of Canada (TSX—POW) is acquiring the 36 per cent of Power Financial (TSX—PWF) that it doesn’t already own. Keep your shares of Power Corp. If you own Power Financial, tender for Power Corp. shares. They offer you better value.
Power Corporation of Canada owns interests in companies in financial services, asset management, sustainable and renewable energy and other business sectors in North America, Europe and Asia. Power Corp. also owns 64 per cent of Power Financial Corp. This company holds stakes substantially in financial services companies in Canada, the US and Europe. Power and Power Financial are reorganizing. This is Power buying the 36 per cent of Power Financial that it doesn’t already own.
This transaction will simplify the corporate structure, and make it easier to value both companies. The integration of the companies is expected to cut costs by $50 million a year within two years.
This transaction is profitable for the shareholders of Power Financial. For each share they tender, they’ll receive 1.05 shares of Power and a penny in cash. This, in turn, provides two financial benefits.
Power Financial shareholders profit most
First, Power’s shares have a “net asset value that is $4.50 higher than the net asset value of each Power Financial share, an increase of 11%.” This should raise your share price gains.
Second, Power’s shares will yield more. Power Financial’s dividend of $1.82 a share yields just over five per cent. Power will raise its dividend by 10 per cent, to $1.79 a share, in the second quarter of 2020. Multiply that by 1.05 and you get a dividend of nearly $1.88 a share. That works out to a yield of more than 5.5 per cent. So your dividend income will rise as well.
Power plans to buy back up to 10 per cent of its shares held by the public. This will automatically raise the earnings per share growth of the company.
Power and Power Financial will use cash of about $350 million to redeem its first preferred shares. This is expected to cut its financial costs by $15 million a year. That will improve Power’s financial flexibility.
Power’s strategy is to focus on financial services. Power Corporation of Canada and IGM Financial as well as Power Financial Corporation and Great-West Lifeco remain buys for long-term share price gains and attractive, growing dividends.
This is an edited version of an article that was originally published for subscribers in the December 2019/Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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The MoneyLetter •1/22/20 •