February 10, 2011

Reject Mini-Tender for GE or Adobe Stock or Any Other Offer from TRC Capital

Last week this news item came out Adobe Warns Holders Against Mini Tender Offer From TRC Capital

In November I got a very similar mini-tender offer for my GE stock (which I've since sold)   I started to write about it at the time but got side tracked by the holidays.  The mini-tender offer came via a notice from my Scottrade brokerage account saying there is a "non-mandatory/re-org tender" offer for GE stock.  The email from Scottrade looks like a generic notice and it had no real detail for the offer in question.   The email said:

Subject : Non-Mandatory/Reorg Tender - GE

Re. stock symbol / cusip - GE / 369604103:
The above-listed stock is part of a non-mandatory reorganization or tender offer, which currently expires on 12/16/2010.
Where to find more information:
  • For offers initiated by the company, information can often be found on the company's Web site.
  • If the offer was initiated by a third party, additional information can be obtained by contacting your local branch office.
  • For mini-tender offers, the US Securities and Exchange Commission has urged caution. To review an SEC educational piece entitled "Mini-Tender Offers: Tips for Investors," please go to http://www.sec.gov/investor/pubs/minitend.htm
If you decide to participate in this offer, you will need to inform your local Scottrade branch office no later than 10 a.m. ET on the expiration date listed above, and a $25 fee will be charged to your account. These shares must then remain in your account until the reorg/tender takes place. Please note that the expiration date for such actions is often extended and terms of the offer are subject to change.
Scottrade is not endorsing or recommending the offer, and the terms have not been reviewed to determine if accepting the offer would be in your best interest. If you do not wish to participate in this offer, notification is not required and Scottrade will take no action on your behalf."

I wasn't aware of GE doing any merger or acquisition activity so I went over to their website to see if I could find news on the topic.  It took a little digging but I found a press release from them there :  
GE Recommends Rejection of Mini-Tender Offer by TRC Capital Corporation

The release from GE says:
"FAIRFIELD, Conn.--(BUSINESS WIRE)--General Electric Company (NYSE: GE) has been notified of an unsolicited “mini-tender” offer by TRC Capital Corporation to purchase up to 5 million shares, or approximately 0.05%, of the outstanding GE common stock at a price of $15.15 per share. TRC’s offer price represents approximately a 4.5% discount to the $15.86 closing price of GE common stock on November 16, 2010, the day before the offer commenced. In addition, TRC’s offer is subject to numerous conditions, including the availability of financing on terms satisfactory to TRC. ..."

Okayy.. so this company TRC Capital was trying to buy GE stock at 4.5% BELOW the market value.  I see no reason I'd want to do that.   Why would a company make such an offer?

GE's news article  also notes: "“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.”

Huh.  Smells like a scam to me.

From the Scottrade letter they point to the SEC page http://www.sec.gov/investor/pubs/minitend.htm for more information on mini-tender offers.   There the SEC has this to say:
"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. Others make mini-tender offers at a premium – betting that the market price will rise before the offer closes and then extending the offer until it does or improperly canceling if it doesn't"

I wondered if people could use this kind of thing as some sort of hedge just in case a stock goes down below its market value.   I could potentially lock in a price 5% below market today if I assume that the stock will drop even further in the upcoming month.   Theres no reason you can't do that on your own with a limit order so this mini-tender has no extra value.  But even if you wanted to hedge then it won't work with the mini-tender.   According to Wikipedia page on mini-tender offers "If the market price of the stock falls below the mini-tender price before the offer closes, the bidder can cancel the offer or reduce the offer price."

The Wiki page also notes that TRC is a company that does a lot of mini-tender offers.

In the Adobe offer TRC was also trying to buy shares for 4.5% below market value.  
They also targeted Raytheon, Monsanto, Yamana Gold, HP and others.   In ease case I find a mini-tender from TRC Capital the company in question that is the target of the offer comes out to recommend against accepting the offers.

There is really nothing good or beneficial in these mini-tender offers for the owner of the stock.    I took GE's advice to reject TRC Capital's offer and I hope everyone else did so also.

More on mini-tender offers from Motley Fool :  "Mini-Tenders, Big Headaches" 

There is apparently nothing illegal with these offers.   It seems TRC Capital is just exploiting the SEC rules about mini-tender offers in a ploy to cash in on unwary or naive investors.   I consider it a scam in the sense that they are basically just exploiting people.  Its technically legal to offer someone $95 for a $100 bill, but if the owner of the $100 bill isn't smart enough to know that is a rip off and their ignorance is what you're banking on then that is a pretty slimy way to make a living.

Bottom Line:   If you own stock in a company that gets a mini-tender offer from TRC Capital then you should NOT accept the offer.

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