Current Price – $42.6
Offer Price – $38 – $45
Upside – 5.5% (if priced at the upper limit)
Expiration Date – 2nd of August, 2017
No proration for Odd Lot Holders (99 shares and less)
This tender offer seems to be a step towards Carl Icahn taking the company private. Icahn’s IEP already owns 72.5% of the outstanding shares and following the tender will have 80%-95% ownership (depending on total number of shares tendered). Due to this reason I believe that tender pricing at the upper limit is very likely and that Icahn will then buy-out the remaining public shareholders at the same price or at a premium to the tender price (although agreement was reached that IEP will not increase its ownership stake beyond 95% for the next two years).
The offer is unlikely to be oversubscribed, as there are only 6.7m shares outstanding that are currently not owned by IEP – meaning that more than 83% of the remaining shareholders need to tender in order for the offer to be oversubscribed. Taking into account that certain percentage of shareholders never participate in tenders (either not aware of it, or simply too lazy), achieving more than 83% participation level is unlikely. And if the offer is undersubscribed, then $45/share price is kind of guaranteed.
IEP itself values TPAC far higher at $54.92/share based on market comparables:
“Icahn Enterprises L.P. uses the indicative net asset value of its subsidiaries as an additional method for considering the value of its assets, and it believes that this information can be helpful to its investors. Icahn Enterprises L.P. publicly reports the indicative net asset value of its subsidiaries, but cautions that such indicative net asset values do not represent the market price at which such subsidiaries trade and accordingly, data regarding indicative net asset value is of limited use and should not be considered in isolation. As of March 31, 2017, Icahn Enterprises L.P. reported the indicative net asset value of its control position in the Company at approximately $981 million or $54.92 per share. The indicative net asset value of Icahn Enterprises L.P’s control interest in the Company was determined based on market comparables, due to the lack of material trading values in the common stock. Based on such comparables, Icahn Enterprises L.P. values its control interest at 9.0x Adjusted EBITDA of the Company’s Adjusted EBITDA as estimated by Icahn Enterprises for the twelve months ended March 31, 2017.”
1) Less than 2m shares tender (out of 6.7m not owned by IEP) and tender offer is cancelled due to minimum condition not met – this is a clear signal that investors consider $45/share to undervalue the company and I would expect the share price to react positively to such announcement. This would likely be followed by somewhat improved bid from IEP.
2) More than 5.8m shares tender – tender will be prorated and tender price is likely to be between $43-$45 / share. After the tender TPCA share price will most likely decrease, but it should remain above the pre-announcement $39 due to expectation that IEP will take the company fully private at the tender price or premium to it (the 2 year lock period could potentially be waived).
3) Tender could always be cancelled due to some unforeseen events.
There is an odd-lot priority for owners of less than 100 shares, however I do not believe it to be relevant in this case as all/most the shares tendered are likely to be accepted. For those expecting that more than 83% of the remaining shareholders will participate in the offer, there is an option to avoid proration by owning and tendering less than 100 shares.