White Mountains Insurance (WTM) – Odd Lot Tender – $1200 upside (unlikely)

Current Price – $863

Offer Price – $825 – $875

Upside – $1200 (for odd lot holders if priced at the upper limit)

Expiration Date – 14th of September, 2017

This is a short note as situation is straight forward and most of the members already have familiarity with odd-lot tenders. I am mostly flagging this due to high potential upside in dollar terms (percentage wise it is only 1.3%). Risk/reward is unfavorable and I have no position at the moment.

SEC filling

White Mountain Insurance Group announced tender offer to buy back 500k shares (12% of total) in dutch auction. There is no proration for odd-lot holders (those owning fewer than 100 shares).

The main reason why I think that upper limit pricing is not likely is 10.5% stock ownership by Franklin Mutual Funds. WTM has continuously bought back stock from Franklin Mutual over the last two years (from 10K and tender documents):

On July 13, 2017, the Company purchased 235,000 Shares from Franklin Mutual Advisers, LLC at a price of $850 per Share”

“During 2016, the Company repurchased shares from Franklin Mutual Advisers in two transactions. On April 19, 2016, the Company repurchased 325,000 WTM common shares for $807.00 per share, the market price at the time the agreement was reached. On September 15, 2016, the Company repurchased 305,000 WTM common shares for $820.00 per share, the market price at the time the agreement was reached.

During 2015, the Company repurchased shares from Franklin Mutual Advisers, a beneficial owner of the Company, in two transactions. On June 1, 2015, the Company repurchased 19,688 WTM common shares for $650.03 per share, the market price at the time the agreement was reached. On September 17, 2015, the Company repurchased 26,300 WTM common shares for $761.50, the market price at the time the agreement was reached.”
Thus Franklin Mutual seems to be a willing seller and I would expect them to eagerly participate in this tender as well, potentially tendering all available shares at $850 (in line with the latest sale) or even below that.
Unless WTM prices drop closer to $825/share, I do not think this tender is worth taking.

8 COMMENTS

  1. Federico Flom

    Hi, you say “potentially tendering all available shares at $850 (in line with the latest sale) or even below that”

    Do you think possible that the clearing price of this tender comes even below the current stock price ?

    Correct me if I am wrong, but just one odd-lot holder that decides to tender at a specific price above current (for example 870) will guarantee at least that level as clearing price due to dutch tender dynamics…

    1. dt

      It is definitely possible that tender price will end up below the current market price If there are sufficient tendering shares to fill the quota at e.g. $850, then anyone who tendered above this price (including odd-lots) will have 0 shares accepted in the tender.

  2. greg lia

    If I understand your post, odd lots are not guaranteed to sell their shares at any price tendered, if odd lots tender above the price it takes for the company to account for 500,000 shares working their way up from the lowest tender price, none of their shares will be accepted. Odd lot simply means that if there is proration the company doesn’t want to go thru the hassle of prorating less than 100 shares and buys them all. I dont see proration being a factor in this deal as with only a 12% buyback I’d be shocked it this goes at the upper limit.

  3. Federico Flom

    Just curious, have you ever seen a Dutch Tender clearing at a price below the offer period VWAP or even below the last day closing price prior expiration ?

    My understanding is that nobody will elect to tender at a price below market. The only way would be have all the buyback tender on shareholders who elect to tender at whatever price the company decides…

    1. dt

      Yes, there have been such cases – however I do not recall the examples at the moment.
      The main instance why tender might happen below the market prices is when larger shareholder wants to sell large position in an liquid security and therefore is not able to liquidate it at market prices.

    1. dt

      Indeed. This was rather surprising and suggests that Franklin Mutual either did not tender or submitted their shares at the upper limit.
      Retrospectively looking I still would have avoided this trade as the upside was quite limited percentage wise and downside far larger.

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