Current Price – $156
Tender Price - $150 - $170
Upside – 9% or $1400
Expiration Date – 23rd of May 2018
No proration for odd lot holders
Yet another dutch tender with odd-lot provision for 8%-9% of the company (total tender amount $1bn). Currently WHR trades close to the lower limit.
Few members emailed me this suggesting that this tender has reasonable chances to end up above the current market prices:
- Shares are trading at two year lows.
- Recently announced 1.08bn sale of Embraco business.
- Ongoing share buybacks - $1bn spent on share repurchases in 2017, and current authorization of $1bn on top of the tender.
- Shares trade close to unaffected price of $150.
- On 2017 earnings company trades at 11.5x operating cash flow and 21xFCF. Based on 2018 guidance company is much cheaper, but I am not sure if that guidance has any credibility (see below).
However, there are a number of negative aspects as well which are likely to encourage investor to tender their shares and exit the position (in turn making the tender oversubscribed and potentially priced at the lower limit):
- Tender offer and business sale announcements coincided with Q1 results, in which management slightly lowered earnings guidance for 2018. So it is hard to judge where the company's share price would trade in the absence of the tender offer (my guess is below $150/share).
- Even though cashflow guidance remained unchanged, management has already badly missed the estimates before, so not sure if anyone considers this guidance to be credible. From Q3 2017 earnings (with just 2 months left till end of the year) "Company now expects to generate cash from operating activities of $1.55 to $1.6 billion and free cash flow of approximately $900 million". Later in Q4 results announcement "Cash provided by operating activities improved $61 million to $1.3 billion, and free cash flow improved $77 million to $707 million".
- From cashflow perspective Q1 2018 is worse than Q1 2017 - thus a massive turnaround in operations would be necessary to achieve the stated guidance.
- In all of the recent earnings releases management quotes industry tailwinds of raw material inflation and unit volume declines unfavorably impacting the results - these tailwinds have not been reversed yet.
- For what it's worth, Cramer is also no longer considering WHR to be a good investment and encouraged investors to sell:
CNBC's Jim Cramer said Dutch Auction, in the next month or so, could help give Whirlpool a short-term boost, marking it a better time for investors to sell.
"I think you should take that opportunity," the "Mad Money" host said Thursday.
Earlier in the week, the company posted a "subpar" earnings quarter, something the Mad Money host said will be difficult to recover from. Perhaps sensing that the share price is too low, Cramer said, the company started a modified Dutch auction tender offering this week: repurchasing $1 billion worth of stock and is willing to pay anywhere from $150 to $170 per share, depending on where the auction ends up.
But Cramer said that's not enough.
"Whirlpool's getting hit by the new steel and aluminum tariffs, which affect nearly everything these guys make," he said. "I think the stock can go a bit higher here if the president issues a lot of exemptions for the steel tariffs next week, but I would sell Whirlpool into that strength. It's just not worth the risk, not in this environment."
No position at the moment