The return of the mini-tender?

Last Friday, we came across an unusual filing in the weekly Friday Night Dump. While we tend to look at most 8Ks that come in late on a Friday for our Pro subscribers, the fact that it came from a company — IBM Corp. — that we used to focus on somewhat obsessively in our pre-footnoted days, tilted the scales even more. But not only was the filing about IBM. It disclosed a mini-tender offer, something Michelle last covered even earlier in her career back as a cub reporter in Florida.

Suddenly, she felt as if someone had sent her for a ride in the Wayback Machine.

As the 8-K disclosed, IBM said it had received notification on Oct. 29 that TRC Capital Corp. had made an unsolicited mini-tender offer for 1 million shares of IBM stock at $170 a share. As IBM helpfully pointed out in the filing, that represented a price that was around 4% below what IBM shares were currently trading at.

Now why would anyone in their right mind agree to that? Most likely because they weren’t paying close enough attention, which is why when Michelle was working in Florida, it was the type of thing that less-sophisticated seniors who owned stock would often complain about. Of course, that was long before stock prices were so easily available. You had to look for the price in the newspaper or get it from a broker.

As hard as it is to imagine someone voluntarily selling stock for less than it’s worth because they can’t figure out the current price, this was such a big problem that the SEC actually issued a warning to investors several years ago. Here’s a snip:

“Investors need to scrutinize mini-tender offers carefully. Some bidders make mini-tender offers at below-market prices, hoping that they will catch investors off guard if the investors do not compare the offer price to the current market price.”

We haven’t heard much about mini-tender offers lately, which is another reason the IBM filing caught us off guard. A quick search of the filings shows that TRC, which is described in the Wikipedia entry on mini-tender offers as being “frequently associated” with the strategy, last tried this at Excelon in May 2012. In 2011, TRC made similar offers at Praxair and United States Steel. In 2010, shareholders at three companies — Verizon, Walgreen Co. and Freeport McMoran received similar offers.

But the IBM one is the first one so far this year. Are more likely over the next few months? We can’t answer that question. But we’ll definitely be keeping our eyes open.


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