Actua (ACTA) – Odd Lot Tender Offer – 7% potential upside

Current Price – $13.10

Offer Price – $12 – $14

Upside – 7% or $90 (if upper pricing limit is used)

Expiration date – TBD (likely around 7th of December)

No proration for odd lot holders

Press release

 

Summary:

Actua Corporation announced its intention to commence a modified “Dutch auction” tender offer to repurchase for cash certain of its outstanding shares of common stock for an aggregate purchase price of no more than $80.0 million of not less than $12.00 nor greater than $14.00 per share.  The tender offer is expected to commence on or about November 7, 2016 and will remain open for at least 20 business days following the date of commencement.  Actua intends to finance the tender offer with its available cash.

If the tender offer is fully subscribed, Actua would repurchase between 14.5% and 16.9% of its issued and outstanding shares as of November 1, 2016, depending on the purchase price payable in the tender offer.

 

How likely is the pricing at the upper limit?

Actua is cloud technology company that has recently sold subsidiary netting $133m (vs $515m market cap) and now is returning part of that cash to shareholders through the tender offer as well as expanded share repurchase program. The company itself is loss making, however it continues to grow organically and through M&A. My (admittedly superficial) analysis indicates that company has proven its ability to grow business internally and then sell it off. So profit making might not be the aim of management. Most importantly, Actua is not hoarding the cash, but rather actively returning it to shareholders (tender + increased baybacks) – I take it as a sign that management is confident is company’s abilities to generate cash going forward either through operations or further sale of businesses.

Actua traded at or above $15/share for most of 2014-2015, and although growth has slowed recently, the sale of GovDelivery business looks like a positive. A number of institutional holders are among its shareholders and they might be not willing to tender below the levels at which the company traded recently.

GovDelivery business was sold for 4x TTM revenue. At the same multiple, the remaining business is worth $420m + $175 cash = $595 market cap or approximately $16/share. So if the remaining business is at least as valuable as GovDelivery, then the proposed tender offer (max $14/share) undervalues the shares and not all shareholders will be willing to tender.

All in all, I think there is a decent chance that upper pricing limit will be used, but I have no specific insights into cloud businesses and therefore might be completely wrong.

 

No proration for odd lot holders:

Although the actual tender offer document has not been released yet, odd-lots are likely to be exempt from proration as per press release: “the conditions of the tender offer, including the provisions relating to proration, “odd lot” priority”

 

Source and Amount of Funds:

Actua intends to finance the tender offer with its available cash.

5 COMMENTS

  1. ep

    Tender completed at $14, no pro-rationing. Interesting that the share price is up over 10% today. Short covering from people who were expecting to be pro-rationed?

    1. dt

      Indeed interesting tender results that seem to confirm the undervaluation case I outlined above. Company was willing to purchase 5.7m shares at $14, however only 4.6m shares tendered – a clear sign that majority of shareholders value the company higher than $14/share. I think this is also the main reason why the stock is up today, although as you suggest some short covering might be involved as well.

      In any case as I tendered full position, I am being cashed out at $14/share – 7% return in a month.

  2. johnjohn

    Good call on the upper limit!
    How often are there cases with no proration? Can I always buy more than 99 shares and expect all of them to be accepted for tender? Will this work out most of the time?

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