100% stock based mini tender offer?

March 22, 2006 1:06 PM

is there such a thing as an "all-stock" mini-tender offer?

I have seen tender offers for publicly traded companies that are stock swap transactions.

I have also seen mini tender offers for cash purchase of shares.

Is there such a thing as a mini tender (less then 5% of shares) offer in which the transaction would be stock for stock?

For example: Imagine Apple (AAPL) wanting to buy 5% of Disney (DIS).

Could apple make a mini tender offer for shares, offering its stock for teh shares tenders based on a given formula? (like 1.20 worth of AAPL for every $1.00 worth of disney)?

posted by Izzmeister to work & money (11 comments total)

I don't see why such a deal would be impossible or illegal. Such an offer, made to the public, seems unlikely. The markets are setup for trading stock for cash, not stock for other stock. It seems more likely that such a stock trade would be arranged privately. Apple's broker would seek out an investor or fund with a 5% or greater stake in disney, and a desire to own AAPL instead. The broker would then organize a deal and pocket a fat commission.

If there was a system for making stock->stock trades, there would be all sorts of interesting and esoteric arbitrage opportunities.
posted by b1tr0t at 1:21 PM on March 22, 2006

Sure, there is such a thing. In fact, If you look at a few of stock valuation sites they have formulas for computing value after a partial tender offer. For example, this [PDF] [PDF] Morgan Stanley Capital International on MSCI Corporate Events Methodology offers the modest formula: Partial Tender Offer; Exchange of Shares; If Premium > 20% and Estimated Gain per Share > 5% on t-1 then [(Other Asset P(t) * Other Asset Issued / Shares Before * Estimated Minimum Entitlement + (100 - Estimated Minimum Entitlement) * P(t)) / 100] / [P(t)] else PAF=1. A little light reading before you turn in for the night.

Anyway, it appears to be quite rare, likely due to reasons such as the one already given by b1tr0t. It's usually a precursor to the tendering company taking over the company they are making the partial tender offer for. So who's done it or tried to? For one, ComCast and Jones InterCable, as shown by this Edgar 8K filing from August 1999. ComCast made "an offer to exchange (the "Exchange Offer") 1.4 shares of its Class A Special Common Stock for each share of Class A Common Stock or Common Stock of Jones Intercable, Inc., ("Jones Intercable"), for up to 79% of the combined number of shares of Jones Intercable Class A Common Stock or Common Stock outstanding". Both companies were publicly traded at the time. By December 1999, however, either because of the tender offer or other deal machinations, it was agreed that ComCast would fully acquire Jones Intercable.
posted by mdevore at 1:53 PM on March 22, 2006

I don't think one could effectively make this swap through a tender offer (if we define a tender offer the way the SEC does). When offering stock as consideration, the filing and disclosure requirements are fairly onerous. I haven't looked into it, but I don't recall a situation in which stock tender offer was made for anything less than a control position. Not that it isn't possible, but it is would be difficult and it probably be much easier and less costly to raise cash somehow and buy shares with those proceeds.

Now, if you were willing to consider a private transaction the plausibility of this kind of transaction depends on the counter-party. If you found a hedge fund or a prop desk at an investment bank that was willing to negotiate this kind of transaction (meaning, they go buy Disney shares or take it from their inventory), I don't see the problem. You could negotiate with the target company and convince them to issue new shares only to you and accept as consideration the shares in your company. But this would involve SEC filings and board of director scrutiny - the board may even decide to receive a fairness opinion from an investment bank to cover their asses.

Could Apple and Disney arrange this - probably yes. Could you take some random shell company and dupe Disney shareholders into swapping their stock for it? I don't see how.
posted by mullacc at 2:10 PM on March 22, 2006

from the page mullacc just linked:

Under the Securities Exchange Act of 1934, parties who will own more than five percent of a class of the companys securities after making a tender offer for securities registered under the Exchange Act must file a Schedule TO with the SEC.

Except for the anti-fraud and a few other provisions of Regulation 14E, the SEC's tender offer rules generally do not apply to tender offers that result in ownership of less than five percent also known as "mini-tender offers."

are you saying that in the case of stock as the payout in such an offer as opposed to cash that could not be done? because that is precisely my question....
posted by Izzmeister at 2:16 PM on March 22, 2006

mdevore's Comcast transaction looks like a typical M&A deal to me. There was a merger agreement negotiated and signed by each company's board of directors which was followed by a tender offer in which the considersation was Comcast stock. There were probably fairness opinions issued on to both boards. It looks like that was a $2+ billion transaction - I bet the transaction fees to bankers and lawyers were at least $50 million.

And MSCI is a market index (like the S&P 500 and Dow). The pdf lays out the methodology by which the index adjusts to handle changes in the underlying stocks. Not to relevant here except that it does show that stock tender offers for less than 100% of a company do exist.
posted by mullacc at 2:20 PM on March 22, 2006

>except that it does show that stock tender offers for less than 100% of a company do exist.

The full extent of my point for its inclusion.
posted by mdevore at 2:24 PM on March 22, 2006

Whoops. I didn't realize a mini-tender offer was exempt. Here's the SEC page on them. Mea culpa - I've only dealt with tender offers as they relate to M&A transaction, which usually implies more significant ownership stakes.

But, the difference between the tender offer and mini-tender offer seems to be in disclosure only. I don't see why you couldn't offer any consideration you want, you'd just have to convince the sellers of the value of that consideration and hope you don't get sued.
posted by mullacc at 2:27 PM on March 22, 2006

And, as always, get a lawyer. I'm just making educated guesses here.
posted by mullacc at 2:29 PM on March 22, 2006

Sorry to spam the thread, but the Wikipedia entry is interesting.
posted by mullacc at 2:39 PM on March 22, 2006

thank you mullacc...

interesting...found alot of related information, seems like 50 companies issued releases saying TRC had made below market offers for their stock...

how would I find out if anyone actually tendered stock to them? Although my question is about stock for stock not below-market-cash for stock, i'd find it hard to believe anyone (well anyone with computer access or stock table access) would go for such a tender offer.

what interests me about a mini tender offer is more that

1) no company management approval needed to buy stock;

and

2) no minimum number of shares required to be tendered.
posted by Izzmeister at 2:58 PM on March 22, 2006

I'm not sure how to get access to this, but I suppose one could search the shareholders of record for the targeted companies and see if TRC is listed.
posted by mullacc at 3:23 PM on March 22, 2006