In our previous article, we introduced mini-tenders and discussed the factors that should be considered before launching a mini-tender offer. As a refresher, a mini-tender is an offer to purchase securities below the threshold that triggers regulatory rules for take-over bids. Such an offer is not specifically regulated and can be used to acquire small but not insignificant positions in public companies, often at a discount to the prevailing market price.
In this article, we discuss mini-tenders from the perspective of issuers and shareholders.
What should issuers do when a mini-tender offer is made?
In response to a mini-tender offer for its securities, an issuer should consider promptly issuing a press release stating its position on the mini-tender offer by recommending that shareholders accept or reject the offer (or the issuer’s reasons for not making any recommendation). The issuer should also consider stating:
- whether the issuer is affiliated with the offeror (in most cases, such offers are made out of the blue);
- whether the offer is priced below the market price of the issuer’s securities;
- whether investors are liable for fees and expenses pursuant to the terms of the offer;
- whether the offer contains withdrawal and proration rights; and
- whether the offer contains terms that appear to be abusive of investors.
By way of example, on November 6, 2014, TRC Capital Corporation made a mini-tender offer to purchase up to 1.5 million shares of Methanex Corporation. TRC sought to purchase approximately 1.6% of the outstanding common shares at a discount of 4.85% on the last day’s closing price before the offer was made.
Methanex responded that it did “not endorse this unsolicited mini-tender offer and recommends that shareholders reject the offer and do not tender their shares in response to the offer. Methanex’s recommendation is based upon the fact that this offer is at a price below the market price for the shares and the offer is highly conditional.” Methanex’s press release also referenced relevant commentary by the Canadian Securities Administrators (CSA) and the U.S. Securities and Exchange Commission (SEC).
What should shareholders do when a mini-tender offer is made?
Ultimately, shareholders must determine whether it is in their interest to tender to a mini-tender offer. There are limited circumstances when tendering securities below the market price may be advantageous (assuming the offer price is discounted).
Proponents of mini-tendering assert that this could occur when a shareholder owns less than a standardized trading unit, allowing the selling shareholder to avoid minimum brokerage fees when tendering. The CSA has observed that while such an instance may occur in “very limited circumstances”, it is essential that shareholders consult with their financial advisors before deciding to tender. The CSA’s commentary states:
Based upon the inquiries of Staff, the only circumstance in which investors might benefit from tendering their securities to a mini-tender is in the circumstances where an individual investor holds less than a “board lot” of securities, (a “board lot” means 100 shares having a market value of $1.00 per share or greater; 500 shares having a market value of less than $1.00 and not less than $0.10 per share; or 1,000 shares having a market value of less than $0.10 per share). Generally, no commissions are payable in connection with the tender of securities to a mini-tender. Therefore, proponents of mini-tenders point out that in some circumstances the holder of less than a board lot of securities could tender to a mini-tender to avoid minimum brokerage commissions that make the sale of his or her securities relatively costly.
The SEC has noted that tendering could be advantageous to the seller when they own limited partnership interests, which may have an illiquid market, making it attractive to tender when a buyer appears.