Cementos Pacasmayo offers soles and pays dollars: the exchange rate inside a tender

On Thursday the author bought 99 American depositary shares of Cementos Pacasmayo, the Peruvian cement maker, at $12.65 each. Control of its majority holder has changed hands, and that holder is now offering S/ 44.65 per ADS to every other holder. The price is fixed in Peruvian soles. The money arrives in dollars, converted at a rate that will not exist until 20 November or the trading day after. This issue works through what that does to the spread, with the filing’s own sentences.

The lesson

How a foreign-currency offer turns a spread into a currency position

When a company listed abroad is bought for cash, the offer is usually priced in its home currency. Its shares or ADSs on a US exchange trade in dollars. So the dollar figure a holder will receive is not fixed when the offer opens: it is the home-currency price divided by an exchange rate taken on one stated day. Until that day, part of the gap between the dollar price on the screen and the offer is the market’s view of where that rate will be.

Cementos Pacasmayo is a clean case. Inversiones ASPI, the holding company that owns about half of it and is now majority-owned by Holcim, filed a US tender offer on 21 October alongside a Peruvian offer for the shares in Lima. One ADS is five common shares, and the price is the same either way.

Start with the arithmetic the filing gives. S/ 44.65 converted at the 19 October rate came to about $12.98, which means that rate was about 3.44 soles to the dollar (44.65 ÷ 12.98). The ADSs closed at $12.73 on Friday 23 October. At the 19 October rate the gap is $0.25 an ADS.

Now read the spread the other way. The offer itself is fixed: S/ 44.65 does not move. Every dollar figure moves with the sol. If the sol weakens by about 1.9%, to about 3.51 per dollar, the offer pays exactly the $12.73 the ADSs closed at on Friday, and the spread is gone. If it strengthens, the dollar payment rises with it. A holder who tenders is not only collecting a takeover premium; for four weeks the holder is also long the Peruvian sol against the dollar, on the full value of the position.

The author’s own position makes the size of that concrete. The 99 ADSs cost $12.6601 each with commissions, $1,253.35 in all. At $12.98 they would return $1,285.02, a gain of $31.67, or +2.53%. A 2.5% fall in the sol, to about 3.53 per dollar, takes the payment to about $12.66 an ADS, which is what they cost.

Three details in the document change the number, and none of them is in the headline price.

Which rate. The payment uses the SBS “tipo de cambio contable venta”, the selling rate the banking regulator publishes for accounting. The $12.98 illustration uses a different series, the “tipo de cambio interbancario promedio”, the average interbank rate. The document does not say how far apart the two series are, so even the starting figure is only an approximation of what the payment rate would have been.

Which day. The cover’s passage for ADSs and the Introduction say the rate published “on the Expiration Date”, Friday 20 November. The cover’s passage for common shares, the question-and-answer section on payment and the payment section in the body say the rate published “on the trading day following the Expiration Date”. The filing does not reconcile the two. Either way, the rate is fixed no earlier than the last day a holder can withdraw, so the currency risk runs to the end.

What comes off. The purchaser pays the $0.05 an ADS cancellation fee, but the payment is made “less … expenses related to the foreign exchange conversion”, and the document gives no figure for those. On a spread of about 2%, an unquantified conversion cost is a real unknown.

There is a second lesson in the same filing, on tax. A holder outside Peru who tenders common shares, rather than ADSs, owes Peruvian capital gains tax, generally at 30%, and must obtain a certificate of the tax cost or be taxed on the gross. The filing is just as plain about the other route: “A Non-Peruvian Holder that tenders ADSs will not be subject to Peruvian tax.” Same company, same price, two tax results, decided only by which line the shares sit on.

This goes wrong in three ways. The first is reading the illustrative dollar figure as the offer: the offer is in soles, and the dollar figure is one day’s conversion. The second is computing the spread and stopping there: the gap on the screen already prices the market’s view of the currency, and the risk that remains is the move from here to the payment date. The third is ignoring the costs that are named without a number, such as conversion expenses, which on a narrow spread can matter as much as the spread.

This week’s lesson has its own guide: foreign-currency offers and the exchange rate inside the spread. Earlier lessons have their own guides: odd-lot priority (issue #1), the Canadian paid-up-capital test (issue #2), broker cutoffs and record dates (issue #3), the upper limit in a split-off exchange offer (issue #4), US withholding on a self-tender (issue #5), due bills on a large distribution (issue #6) and proration (issue #7).

This week’s situations

Live offers with terms and a deadline, each worked through with the same arithmetic. This week’s filings produced 33 captures: 12 were tenders by funds with no listed share, 3 by unlisted credit vehicles with no line at the author’s broker, 1 by an unlisted Canadian partnership, 11 were results or amendments of offers already covered here, 2 were news items about an issuer bid not yet launched, and 4 were new offers. One of the four, Cementos Pacasmayo, is added below; the other three are under Killed. Perfect Corp drops out: its merger closed on Friday.

Gross = (offer − price) ÷ price, on the part of the position the offer takes up. Annualised = gross ÷ days to expected cash × 365, for that trade only; not a yearly or portfolio return.

Broker execution

A merger pays without an election

This is the running record of what a broker actually does, as opposed to what the offer document says. Perfect Corp is the newest entry. The merger took effect at 07:00 Cayman time on Friday 23 October, the company asked for trading to be suspended before the New York open that day, and each share became “US$2.00 in cash per share without interest”. Nothing had to be elected or tendered. By Sunday 25 October the 1,200 shares were gone from the author’s position list; the day the $2,400.00 posts in the cash ledger is still to be confirmed, and it will be printed here as a days-to-cash figure beside Arbutus (six days) and Oma Savings Bank (twelve).

Apollo Commercial is in its due-bill window. The broker’s corporate-action screen lists the $4.10 as a cash dividend, payable 29 October with an ex-date of 30 October, plus a second entry with blank terms dated 30 October. A distribution coded as a dividend may be taxed as one at the source for a holder outside the United States, which is not how the proxy describes liquidating distributions; what is actually paid and withheld goes in the issue of 1 November.

Cementos Pacasmayo is the next cutoff to measure. The filing warns that intermediaries set their own earlier times; as of Friday the author’s broker had posted none for an offer that expires on 20 November. Four gaps are measured so far: Arbutus four hours early, Oma Savings Bank about two days early (twice) and Delivery Hero more than two days early. One house rule applies to every holding named here: the author does not trade a security named in an issue from the time it is written until two trading days after it is sent.

The dates that matter · New York time

Killed, and what to look for next time

When the market is above the cash

SoundThinking. Transom’s offer pays $8.00 cash plus one contingent value right paying up to $3.00 if milestones are met, expiring one minute after 23:59 New York on Tuesday 17 November. The shares closed at $8.36 on Friday, above the cash. The market is paying about $0.36 for the right, 12% of its maximum, and the right cannot be sold before it pays or lapses. On the cash leg alone, a tender loses money. The spread here is the price of the contingent right, not a spread at all. Author holds: no.

INVE Technologies. A modified Dutch auction for up to $20 million at $2.85 to $3.40 a share, expiring 17:00 New York on Thursday 19 November. Friday’s close was $2.79, below the floor. The document defines odd lots but buys every share at or below the clearing price pro rata, so a holder of 99 gets no priority. It also says the depositary “will likely withhold” 30% of the gross from a holder outside the United States: on 99 shares at the floor, $84.65 of $282.15. The non-US paragraph matters more than the range. Author holds: no.

Cavitation Technologies. A cash offer whose price is a formula: $35,000,000 less the company’s liabilities at a 24 December record date, divided by the shares outstanding. It needs 90% of the shares, a second offer for another company must succeed, and it expires on 26 January 2027. With no price until December there is nothing to compute. Author holds: no.

Sturm Ruger, final. Issue #7 printed the preliminary factor of ~38.45% and said it would rise if guaranteed deliveries failed to arrive. The final count: 6,094,325 shares validly tendered against 6,241,903 counted before, so 147,578 promised shares never came, and 2,400,184 accepted at $44.80 gives “approximately 39.4%”. Author holds: no.

Also still dead for this account. Utah Medical closed at $74.23 against its $75.00 offer, +1.04%, expiring 17:00 New York on Tuesday 27 October, with 24% withheld from the gross paid to a foreign holder. SkyAI closed at $2.89 against $3.00, with 30% of the gross withheld. WildBrain closed at C$1.27, still below the C$1.30 floor, and its paid-up-capital figure is still unread. SNDL has announced a possible issuer bid of up to C$50 million at no more than C$1.92 a share, to follow its third-quarter results; until the circular is filed there is no price, date or tax figure to read. Author holds: none of these.

Also in the count. Fifteen tenders were by funds or credit vehicles with no line at the broker, and one was by an unlisted Canadian partnership at C$6,100 a unit. None can be reached from a broker screen.

The book

Every position, and every closed one

Open, at Friday’s closes. Apollo Commercial, 300 shares at an average cost of $6.9150, $6.42 on Friday, held for the $4.10 payment on 29 October. Delivery Hero, 50 at €37.035, €37.34 on Friday, not yet accepted. Cementos Pacasmayo, 99 ADSs at an average cost of $12.6601, bought on 22 October, $12.73 on Friday, not yet tendered. SDCL Efficiency Income Trust (London), 2,150 at an average cost of 35.31p, 31.5p on Friday; no offer price; at the general meeting of 15 October holders appointed two directors nominated by its two largest investors. And 100 contingent value rights from the Atai transaction, on a placeholder line with no market.

Closed since the last issue: Perfect Corp, 1,200 shares at an average cost of $1.8088, paid out at $2.00 in cash when the merger took effect on 23 October: $2,400.00 against $2,170.50, +$229.50 (computed; broker statement pending). Closed earlier, and on the record: Lindsell Train Investment Trust, +£22.67; Oma Savings Bank, +€39.00. Realised losses on the record: Air Canada, −C$24.95; Zevia, −US$323.10; Arbutus, −US$4.96.

The outcome record, every closed position with fills and realised P&L: https://99shares.org/scoreboard/

This publication discusses the mechanics, deadlines and public filings of corporate actions such as tender offers, exchange offers and liquidations. The author does not hold a licence as a financial adviser in any jurisdiction and is not an appointed representative of one. Nothing here is a recommendation to buy, sell or hold any security, and nothing is tailored to any reader’s circumstances. We do not answer individual investment questions. We accept no payment, sponsorship or other benefit from any issuer named. Any position in a named issuer is disclosed in the issue. The author does not trade a security named in an issue from the time the issue is written until two trading days after it is sent. Figures are taken from the primary source cited. Readers should not rely on this publication in making an investment decision.

Terms of use · 99shares.org · hello@99shares.org · Sent every Sunday. Unsubscribe at any time.