Silgan Holdings (SLGN) – Odd lot Tender Offer – 3% upside

Current Price – $50.8

Offer Price – $45.5 – $52.25

Upside – 3% or $170 (if upper pricing limit is used)

Expiration date – 15 November 2016 (Q3 results on the 26th of October)

No proration for holders of less than 100 shares

SEC Filling

 

Summary:

Silgan Holdings is offering to purchase up to 5,494,505 shares of our common stock in a tender offer. SLGN is offering to purchase these shares at a price not less than $45.50 nor greater than $52.25 per share in cash, upon the terms and subject to the conditions described in this offer to purchase, accordingly, the company will purchase shares having an aggregate purchase price of no more than $250 million. At the minimum price of $45.50 per share in the Offer, we will purchase a maximum of 5,494,505 shares, or approximately 9.1% of our outstanding common stock as of October 14, 2016. At the maximum price of $52.25 per share in the Offer, we will purchase a maximum of 4,784,688 shares, or approximately 7.9% of our outstanding common stock as of October 14, 2016.

 

Why the deal is likely to be priced at the upper limit?

I believe there is high probability that the deal will get priced at the upper limit. My conviction mainly comes from historical evidence as this is not the first tender offer that Silgan is pursuing.

2015 – Dutch tender for $200m at prices $54.75-$58.5 per share – in the end only $162m worth of shares were tendered and all were accepted at the upper limit, which also happened to be all time high for the company. Share price range during the tender $56.3 – $57.95, i.e. below the upper limit.

2013 – Dutch tender for $250m at prices $40.75-$45.25 per share – the final price was set at $45.25 and proration factor was 64.5%, so again relatively few shareholders were willing to tender even at the upper limit.  Share price range during the tender $40.72 – 45.07, i.e. below the upper limit. The company even reduced guidance during the tender period, but that did not seem to affect the tender results.

2010 – Dutch tender for $175m at prices $31.25-$35.25 per share. Final price was set at $34.75. A total of 5.3m shares were tendered and 5.0m accepted.

The bottom line is that SLGN shareholders do not seem to be willing to part with their shares and at least so far have been reluctant to participate in the tenders. Insiders own 33% of the shares and have expressed intention to tender proportional amount in order to maintain same ownership percentage.

SLGN financial performance has recently slightly deteriorated – TTM revenues of 3.7bn vs 3.9bn in 2014 and TTM net income of $157m vs $182m in 2014. This deterioration has been reflected in the somewhat declining share price over the last two years. Also deteriorating financial performance might change shareholders willingness to participate in the tender.

Silgan Holdings will release Q3 results on the 26th of October and this might materially affect the share price. During the latest conference call CEO indicated:

“As we look to the rest of the year, our metal container and closure businesses are performing very well operationally, but the unfavorable weather conditions in Europe and current demand indications from certain U.S. pet customers are pointing to lower than expected back half volumes. In addition, the slower pace of equipment relocations associated with the plastic footprint optimization program will result in inventory reductions and continued cost further into the year.”

So there might be better buying opportunities after the Q3 results announcement if there is a surprise on the negative side.

 

No proration for odd-lot holders:

If you properly tender (at or below the Selected Price), and do not properly withdraw, your shares according to the procedures specified for holders of “odd lots” (fewer than 100 shares),  we will purchase all of your shares without subjecting them to the proration procedure

Source and amount of Funds:

The aggregate purchase price for the shares tendered in the Offer will be $250 million, unless the Offer is undersubscribed. We expect to fund the purchase of the shares tendered in the Offer from existing cash on hand and revolving loan borrowings under the Credit Agreement. The Offer is not conditioned on the receipt of financing