For the second time this year, a Canadian bank has been given permission by the Ontario Securities Commission to buy back a good chunk of its own shares via private agreements with an arms-length third party seller.
This week, Toronto-Dominion Bank joined the parade and plans to purchase, for cancellation, up to 3,166,667 of its shares between now and December 2016. The shares the bank purchases under the so-called issuer bid exemption order count towards its normal course issuer bid. (TD’s NCIB allows it to purchase 9.5 million shares. Through the private placements it’s allowed to buy back one-third of its NCIB.)
TD’s move comes a few days after CIBC was granted a similar exemption. The bank is allowed to make “private agreement purchases,” of its own shares with an arm’s-length third party seller. The bank has an upper limit of 2.666,667 shares that it’s allowed to purchase – or one third of the 8 million shares it’s allowed to buy back under its NCIB.
Under the order the banks are required to meet two conditions:
the price paid for the shares bought will be at “a discount to the prevailing market price”;details of the buy back, specifically the shares purchased and the “aggregate price paid,” have to be filed on SEDAR;
So what are the issues here? From the issuer’s perspective, private sales agreements represent an efficient way to acquire a large number of shares. It does that by removing the uncertainty of timing and cost volatility associated with open market purchases. And it doesn’t pay full market price.