The latest Power Corp. share sale wasn't the most conventional, but it panned out for the powerful Desmarais family.
Typically when a big shareholder wants to sell a chunk of shares, they call up investment banks and ask for a bought deal. If the banks approve, they immediately buy all of the shares, giving the seller all of their proceeds up front, and the underwriters are then tasked with re-selling the securities to investors.
The Desmarais family didn't go this route for their latest sale of Power Corp. shares. Instead, they launched a marketed block trade, meaning they gave the investment banks one night to drum up as many orders as possible, with no guarantee that any investors would come to the table. Under this model, the Desmarais family would have to take whatever orders it could get in a short period of time.
Adding even more risk, the family had to disclose ahead of time that it would sell shares. Because the Desmarais family controls Power Corp., securities legislation requires them to announce their intentions prior to a transaction of this type. After doing so, they have to wait at least seven days before selling any shares. That can be a big risk. Whenever investors know there is a motivated seller, they can drive down the share price to get the best deal for themselves.
No matter. The Desmarais family charged ahead and played their hand wisely, filing the necessary public disclosure about the stock sale on Christmas Eve when barely anyone was paying attention. Two weeks later the deal was formally launched, and on Tuesday morning 15.46 million shares changed hands at $30.50 apiece, amounting to $472-million.
While a bought deal of this size would traditionally be viewed as a big win for the underwriters, the fees for this marketed offering are rather low, just 2 cents a share for each institutional order. In large part that's because the underwriters aren't taking on any risk of being stuck with stock if investors aren't interested.
However, retail advisers were paid rather well. To help get the deal sold, the underwriters opened it up to their retail investor channels, broadening the base of potential investors. Retail advisers earned 25 cents for each share sold to their clients.