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David Goodman, the president and CEO of Dundee Corp.Fred Lum/The Globe and Mail

Dundee caves to investor pressure on preferred share proposal

Dundee Corp. is sweetening its controversial $107-million retractable preferred share exchange offer after hitting a brick wall the first time around.

The Toronto holding company is now offering holders of its Series 4 securities a 7.5-per-cent dividend instead of the previous 6 per cent, an increase of 25 per cent, if they agree to switch to a new Series 5.

Existing Series 4 investors currently get paid an annual dividend rate of only 5 per cent but have the right to a full cash payout at par in June. For the most part, Dundee is sticking with its earlier plan to push out the retraction date on the securities by three years with a few exceptions:

Under the revised offer, investors will have the right to redeem up to 15 per cent of the value of their shares in June, 2016, and a further 17 per cent in mid-2018. Under the offer tabled in November, shareholders were being asked to wait until June 30, 2019, before redeeming anything.

Dundee is also now offering shareholders 0.25 of a warrant per preferred share. One warrant entitles shareholders to buy one subordinate voting share at $6 apiece. (Dundee shares closed at $5.74 on Thursday.)

"Since launching our initial proposal, we have learned who our larger holders are and have sought input from a broader group in coming to our revised proposal," David Goodman, chief executive officer of Dundee, said in an e-mail.

"We listened to the position of others and responded with a proposal that we believe is in everyone's best interest."

A shareholder vote scheduled for Thursday has been pushed back by three weeks to give investors time to mull the new offer.

"It seems like a fair enough offer," pensioner Brian Waring said in an interview. He bought the Series 4 shares expecting a full cash payout in the summer of 2016.

"For people like me who needed the money, it's still a bit of a bother."

Mr. Waring said Dundee is "softening the blow" by bumping up the payout though.

From the get-go, Dundee's first kick at the can ran into trouble. As The Globe and Mail first reported in early December and Dundee itself confirmed a few weeks later, institutional shareholders were not happy. The earlier 6-per-cent dividend payout offer was seen as chintzy, especially when stacked against comparable yields on securities deemed a much safer bet, such as the bevy of rate reset preferred share offerings from big Canadian banks that have hit the market in recent months.

At the time of the original offer, a prominent shareholder rights group also voiced concerns over Dundee's plan to compensate brokers who sway investors to vote yes. Dundee is keeping that plan in place. (One per cent of the value of the shares is payable to brokers only if their clients vote yes and the vote is passed.) However, Dundee has elected to drop an earlier plan to pay 1.25 per cent of the value of each share directly to investors who voted for the plan.

Preferred share fund manager James Hymas, president of Hymas Investment Management Inc., who didn't care for the original offer, doesn't like the revised offer much either – calling it "abusive" in a published note on his website, partly because of the omission of a "special retraction right" that allows shareholders to cash out under the original terms.

"Virtually every preferred share term extension voted on by shareholders provides for a special retraction right," Mr. Hymas wrote.

"No such provision implies that the company is afraid of a mass retraction, which indicates that the company knows its offer is no good."

Two-thirds of voters need to vote yes for the exchange to pass.


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