Although I’ve previously written various examples of my investments in going-private transactions, one type of special situations investing that I had not tried until recently was odd-lot tender offers.
In a tender offer, a company usually offers to purchase all or a portion of its outstanding shares at a specified price and time. Sometimes these offers come with an odd-lot preference, which means that shareholders with less than 100 shares will receive preferential treatment and their shares will be purchased first assuming other conditions (such as tender price and submission dates) are met. This allows the company to reduce its overhead and administrative costs for small shareholders.
Fidelity National Services (FIS) had announced back in May that their board had authorized a $2.5B share repurchase plan via a dutch auction, with tender prices expected to range from $29 to $31. In a subsequent amendment a month or so later, preference for odd-lots was announced and the expiration date of the offer was set to expire on Tuesday, August 3rd.
I decided to give this opportunity a try by using my son’s Coverdell account (a small account with preferential tax treatment) to purchase 99 shares at $27.75 on July 15th. At this price, I believed that if anything were to happen and the tender offer fell through, this would still give me sufficient safety to sell the stock with limited losses. It also allowed me to go through the actual motions to figure out how to submit my shares for tender, at what price, with my brokerage firm at Schwab. In this case, it turned out that I needed to phone a representative to handle my request to tender shares (I opted to tender at whatever amount resulted from the dutch auction, but I could have submitted any figure from $29 to $31).
On August 3rd, the results of the dutch auction were announced, and the tender price was set at the lowest end of $29. Even so, this allowed me to earn $115 in a couple of weeks’ time, or a return of about 4% after fees. Schwab did claim that they charged a fee of $39 for “voluntary reorganizations” such as odd-lot tender offers, but I have yet to see that show up in my account. (Yet another reason to try out a small opportunity like this and ferret out all the potential gotchas!) It’s a small but nice return in a brief amount of time, but more importantly, I have a better idea of what to expect and look for in future tender offers.
In case you’re wondering, I actually find out about all of my special situations investing opportunities through a subscription to Fat Pitch Financials’ Contributors Corner and have been pleased with the service (and no, I unfortunately don’t receive any benefits from referring to them in this post!) Check it out if you’re curious to learn more. The subscribers there are pretty helpful in offering their experiences, any opportunities they find, and answering questions (such as whether there’s an advantage to tendering early, or at a higher price, or trying to purchase from multiple accounts).