It’s been a while since I’ve shared with you the details of a stock tender offer. Stock tender offers with an odd lot provision are particularly attractive for individual investors since they allow holders of less than 100 shares to avoid proration that often occurs when tender offers are oversubscribed. Therefore, if you own less than 100 shares of a company that is tendering their shares, you know that you can receive a price between a certain range for all the shares you own. If you bought the shares below the minimum tender offer, you can be fairly certain that you will earn some profit from tendering your odd lot holding. These tender offers can be some of the lowest risk deals you can find in the stock market. Recently, United Rentals (URI) conducted such a tender offer.
I didn’t participate in the United Rentals (URI) tender offer (don’t ask me why), but Jonathan at My Money Blog did. Jonathan learned about the United Rentals tender offer in early July from my Fat Pitch Financials Contributor’s Corner premium service. Jonathan is a full paying member of Contributor’s Corner and did not receive any compensation or direct guidance from me on his articles about his experience with this tender offer. Nevertheless, I highly recommend his two articles on the United Rentals tender offer, especially if you have never experienced one of these transactions.
In his first article, Jonathan tells his readers about his purchase of 99 shares of United Rentals for $19.81 per share on July 9th. He then details the background of this deal. The key point is that United Rentals wanted to buy back 27 million shares using a Dutch auction with a range of $22 to $25 per share. While Jonathan admits he is a novice at these deals, he did a great job detailing the risks associated with the tender offer. He notes that too many people might tender their shares, and therefore URI might only buy a partial amount of your shares unless you own an odd lot. The other big risk is that the company might cancel or amend the tender offer. Jonathan does a great job assessing the risks and explaining his thought process. While Jonathan is primarily a passive index fund investor, he has realized that these unique special situation opportunities can help juice his portfolio. He sums up the potential of the URI tender offer by stating:
“Basically I’m trying to make $200 while putting up $2,000. That is a return of 10% over what should take a few months.”
Jonathan then followed up on July 20th with his results from the URI tender offer. It was a successful trade for him. He made $191.91 (9.8%) in less than a month, which comes out to over a 100% annualized rate of return. Jonathan notes, “Even after taxes, that will be buy me over 25 meals from the lunch carts.” That a good way to think about it. Let’s just hope he doesn’t eat all those meals at one time.
I’m just happy to know that Jonathan more than recouped the cost of his Contributor’s Corner membership. Jonathan makes an important point to note that larger shareholders didn’t do nearly as well on this deal. This is just one of those rare cases on Wall Street where the little guys have the advantage. I think Jonathan would agree that in addition to the small amount of cash he made, he also learned a lot about how special situations work. Participating in these small tender offers can help you work through many of your questions regarding tender offers, so you can gain the experience and confidence needed for much larger deals. There are only a few tender offers occurring at this time, but I suggest you review Jonathan’s experience and my past experience with tender offers so you can be ready for the next fat pitch.
Disclosure: I do not own shares of United Rentals (URI).