Temporary Equity, Equity and Dividends

3 Months Ended

Mar. 31, 2023

Temporary Equity, Equity and Dividends

Temporary Equity, Equity and Dividends

20.    Temporary Equity, Equity and Dividends

Share Capital

Common Stock

Unlimited number of common shares, without par value.

Preferred Stock

Unlimited number of senior preferred stock, of which 485,000,000 are designated as Series A Senior Preferred Shares, and junior preferred shares, without par value, issuable in series. All issued shares are fully paid.

In January 2023, the Company entered into a securities purchase agreement with Starboard Value LP and certain affiliates (together, “Starboard”) pursuant to which Starboard agreed to purchase $485.0 million of Series A Senior Preferred Shares, convertible into common shares of the Company, and $15.0 million of common shares of the Company. The transaction closed on February 1, 2023 (the “Issue Date”).

The Series A Senior Preferred Shares are convertible into common stock at an initial conversion price of $73.00 per share. The Series A Senior Preferred Shares carry an initial 5.5% preferred dividend, which is payable quarterly, in cash or in shares at the Company's option (“Preferential Dividends”), and are entitled to participate on an as-converted basis in the Company's regular quarterly common share dividends, subject to a $0.27 per share per quarter floor (“Participating Dividends”). On the fourth anniversary of the Series A Senior Preferred Shares Issue Date, holders will have the right to increase the preferred dividend to 7.50%, and on the ninth anniversary of the Series A Senior Preferred Shares Issue Date, holders will have the right to increase the preferred dividend to a fixed percentage equal to the greater of (a) 600 bps over the daily simple SOFR as then in effect and (b) 10.50%, subject, in each case, to the Company’s right to redeem the Series A Senior Preferred Shares for which a dividend rate increase has been demanded (an “Increased Dividend Rate Demand”).

In connection with any Increased Dividend Rate Demand, subject to certain conditions, and upon 45 days’ notice to the holders, the Company will have the right to redeem all or any portion of the Series A Senior Preferred Shares then outstanding, at a price equal to 100% of the face amount of such Series A Senior Preferred Shares plus any accrued and unpaid dividends thereon. Additionally, at any time after the ninth anniversary of the Series A Senior Preferred Shares Issue Date, subject to certain conditions, and upon 45 days’ notice to the holders, the Company will have the right to redeem all or any portion of the Series A Senior Preferred Shares then outstanding, at a price equal to 100% of the face amount of such Series A Senior Preferred Shares plus any accrued and unpaid dividends thereon.

Upon consummation of one or more specified change of control transactions, the holders will have the right to require the Company to repurchase the Series A Senior Preferred Shares in cash provided, however, that each holder, at its option, may elect instead to convert its Series A Senior Preferred Shares into the applicable change of control consideration. In addition, the Company has the right to redeem the Series A Senior Preferred Shares in the event of a change of control transaction where the successor entity is not traded on certain eligible markets. The possible future redemption of the Series A Senior Preferred Shares as a result of a change in control has been assessed as not probable at March 31, 2023.

Holders of the Series A Senior Preferred Shares are entitled to vote together with the Common Shares on an as-converted basis on all matters permitted by applicable law, subject to certain exceptions to enable compliance with applicable antitrust law.

The Series A Senior Preferred Shares rank, with respect to rights as to dividends, distributions, redemptions and payments upon the liquidation, dissolution and winding up of the Company, (a) senior to all of the junior preferred shares of the Company, Common Shares and any other class or series of capital shares of the Company, issued or authorized after the Series A Senior Preferred Shares Issue Date, (b) on a parity basis with each other class or series of capital shares issued or authorized after the Series A Senior Preferred Shares Issue Date, and (c) junior with each other class or series of capital shares issued or authorized after the Series A Senior Preferred Shares Issue Date.

20.    Temporary Equity, Equity and Dividends (continued)

Share-based Continuing Employment Costs

The Company has issued the following common shares in connection with the acquisitions of Rouse and SmartEquip. These shares were issued to certain previous unitholders and shareholders of Rouse and SmartEquip, based on the fair market value of the Company’s common shares at the acquisition date. The Company records share-based continuing employment costs in acquisition-related and integration costs over the vesting period, with an increase to additional paid-in capital. The vesting of shares issued for business combinations is subject to continuing employment with the Company over various dates over a three year period from their respective acquisition dates. As and when the common shares vest, the Company will recognize the fair value of the issued common shares from additional paid-in capital to share capital.

	Rouse			SmartEquip			Total
								Weighted average
	Common	Fair value		Common	Fair value		Common	fair value
	shares	per common		shares	per common		shares	per common
	issued	shares		issued	shares		issued	shares
Outstanding, December 31, 2022	85,560	$	71.09	42,646	$	68.39	128,206	$	70.19
Granted	—		—	—		—	—		—
Vested	(4,636)		71.09	—		—	(4,636)		71.09
Forfeited	—		—	—		—	—		—
Outstanding, March 31, 2023	80,924	$	71.09	42,646	$	68.39	123,570	$	70.16
Outstanding, December 31, 2021	189,665	$	71.09	63,971	$	68.39	253,636	$	70.41
Granted	—		—	—		—	—		—
Vested	—		—	—		—	—		—
Forfeited	—		—	—		—	—		—
Outstanding, March 31, 2022	189,665	$	71.09	63,971	$	68.39	253,636	$	70.41

At March 31, 2023, the Company recognized $0.3 million (2022: nil) of share capital from additional paid-in capital for the portion of common shares previously issued in connection with the acquisition of Rouse that have vested as of March 31, 2023.

Shares Issued for Business Combinations

At March 31, 2023, the unrecognized share-based continuing employment cost was $2.4 million (at December 31, 2022: $3.2 million), which is expected to be recognized over a weighted average period of 0.9 years.

Change in Non-controlling Interest

On January 3, 2023, in connection with the acquisition of VeriTread (Note 5), the Company increased its investment in VeriTread from 11% to 75% for a total purchase consideration of $28 million. The Company also entered into a put/call agreement with one of the minority unitholders under which the holder can put its remaining 21% interest in VeriTread to the Company, if certain performance targets are met. As the purchase of the remaining 21% interest from the minority unitholder is outside the control of the Company the redeemable non-controlling interest is classified in temporary equity on the consolidated balance sheet. As discussed in Note 3, management applied judgement and assessed that it is probable that the redeemable non-controlling interest will be redeemed at a future date and accordingly the carrying value of the redeemable non-controlling interest is adjusted to its estimated redemption value.

The Company also recognized an additional 4% non-controlling interest in VeriTread within equity as that interest does not contain put/call options.

20.    Temporary Equity, Equity and Dividends (continued)

Dividends

Declared and Paid

The Company declared and paid the following dividends to common stockholders during the three months ended March 31, 2023 and 2022:

Common Stock

		Dividend			Total
	Declaration date	per share		Record date	dividends		Payment date
Special Dividend	March 6, 2023	$	1.0800	March 17, 2023	$	120.4	March 28, 2023
Fourth quarter 2022	January 20, 2023	$	0.2700	February 10, 2023	$	30.0	March 3, 2023
Fourth quarter 2021	January 21, 2022	$	0.2500	February 11, 2022	$	27.7	March 4, 2022

On March 7, 2023, the Company declared a special cash dividend of $1.08 per share, contingent on the closing of the acquisition of IAA, payable to stockholders of record at the close of business on March 17, 2023 (the “Special Dividend”). The Special Dividend was paid in cash on March 28, 2023 following the acquisition of IAA.

Preferred Stock

The Company recorded Preferential Dividends of $4.3 million to the holders of the Series A Senior Preferred Shares in the first quarter of 2023, of which $3.1 million was paid on March 15, 2023 and $1.2 million was accrued and unpaid at March 31, 2023, and Participating Dividends of $1.8 million on March 3, 2023.

Declared and Undistributed

Subsequent to March 31, 2023, the Company’s Board of Directors declared a quarterly dividend of $0.27 cents per common share, payable on June 20, 2023 to common stockholders of record on May 30, 2023.

Foreign Currency Translation Reserve

Foreign currency translation adjustments within other comprehensive income include intra-entity foreign currency transactions that are of a long-term investment nature, which generated a net gain of $1.3 million for the three months ended March 31, 2023 (three months ended 2022: net loss of $0.9 million).