Fortive (FTV) – Split-off – 8.5% Upside ($690 for Odd Lots)

Current Price –$81.68

Offer Price – $88.63

Upside – 8.5% or $690 for Odd Lot holders

Expiration date – 25th of September, 2018

SEC Filling

 

This is a rather standard split-off transaction of which I have already posted quite a few. The most recent ones were CBS/ETMPG/COTY and LMT/LDOS. I recommend reading through those and examining share price behavior during and after the tender to familiarize yourselves with risks involved in this kind of transaction.

In summary, each $100 of FTV stock accepted in the tender will be converted into $108.7 of AIMC stock subject to the upper limit of 2.32 shares of AIMC per FTV share. Tender dates have not been set yet.

 

Important items to consider:

  • Final exchange ratio will be determined close to the expiration of the offer (dates have not been set yet), therefore final payoff/loss might differ from the indicated one and depending on how shares move in the meantime this transaction might even result in losses for investors. Right before the expiration the exchange ratio will already be known, so one might wait till then for the trade (however the upside in the trade might be gone by then).
  • Transaction is subject to upper limit of 2.3203 AIMC shares per share of FTV. At current prices the exchange ratio is at the upper limit. If the spread widens (i.e. FTV gets more expensive and AIMC gets cheaper) during valuation dates, the final pay-off will be less than 8.5%.
  • At the moment there are AIMC shares to borrow for hedging the to-be-received AIMC position, but this borrow might dry up and borrow rates might shoot up higher as happened in number of previous cases. Approximately 54% of post split-off AIMC stock will be held by current FTV shareholders so after the tender there will likely be quite a bit of selling pressure.
  • Less than 5% of the FTV shares will be exchanged in the split-off, thus FTV market price is unlikely to be effected much by this arbitrage situation and proration is likely to be high.
  • Tender is subject to  AIMC shareholder approval.
  • Tender and valuations dates have not been set yet.


Transaction details:

This Exchange Offer is designed to permit you to exchange your shares of Fortive common stock for shares of Newco common stock at a price per share equal to an 8% discount to the per-share value of Altra common stock, calculated as set forth in this prospectus. Stated another way, for each $100 of your Fortive common stock accepted in this Exchange Offer, you will receive approximately $108.70 of Newco common stock. The value of the Fortive common stock will be based on the calculated per-share value for the Fortive common stock on the NYSE and the value of the Newco common stock will be based on the calculated per-share value for Altra common stock on Nasdaq, in each case determined by reference to the simple arithmetic average of the daily VWAP on each of the Valuation Dates. The number of shares you can receive is subject to an upper limit of 2.3203 shares of Newco common stock for each share of Fortive common stock accepted in this Exchange Offer. The next question and answer below describes how this limit may impact the value you receive.

 

No proration for Odd Lot holders:

An exception to proration can apply to stockholders (other than participants in the Fortive Stock Fund through either of the Fortive Savings Plans) who beneficially own “odd-lots,” that is, fewer than 100 shares of Fortive common stock. Such beneficial holders of Fortive common stock who validly tender all of their shares will not be subject to proration.

48 COMMENTS

    1. dt

      From the SEC filling:

      “An exception to proration can apply to stockholders (other than participants in the Fortive Stock Fund through either of the Fortive Savings Plans) who beneficially own “odd-lots,” that is, fewer than 100 shares of Fortive common stock. Such beneficial holders of Fortive common stock who validly tender all of their shares will not be subject to proration.”

  1. bz

    kinda confused. 2.32 shares of AIMC is less than $90 today. Am I missing something?

  2. makarid

    dt,thank you for this split-off! For some reason i miss this from my alert.

  3. leoc00

    Thanks for the heads up! It seems the expiration date is 2018/9/26.

    And pretty interesting that AIMC dropped ~6% today on this news, shareholders must be pissed that they are giving away the company with a 8.5% bonus.

  4. jason kravitz

    You have the expiration date listed as TBD. So what is the below referencing on the s-4? Thanks for the assistance.

    THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 8:00 A.M., NEW YORK CITY TIME, ON SEPTEMBER 26, 2018, UNLESS THE OFFER IS EXTENDED OR TERMINATED. SHARES OF FORTIVE COMMON STOCK TENDERED PURSUANT TO THIS EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF THIS EXCHANGE OFFER.

    1. dt

      I kind of thought that this September 26th day is still subject to change and is here for indicative purposes only:
      - transaction is still subject to AIMC shareholder approval (meeting scheduled for 4th of September), so all deal might still get cancelled.
      - FTV has not launched tender offer, and expiration is usually scheduled one month from the start of the tender.

  5. dt

    I had a look through 3 previous split-offs and shareholder approvals on those cases:
    - ETM and COTY – no approval was required as the largest shareholders controlled more than 50% of votes and provided merger consent.
    - LDOS – shareholder meeting was held during the tender period and merger received overwhelming support despite material LDOS share price decline and expected dilution.

    I think the risk of shareholders killing the deal is low. The transaction was made public in March 2018 and so far shareholders have not voiced any objections. I also assume management discussed with largest owners and received ok from them.

  6. wlblount

    Is there anything to the class action against AIMC or is that pretty standard in situations like this?

    1. Rick Sanchez

      I haven’t looked at the class action specifically but in general, you do see them all the time around mergers

  7. wlblount

    Is it possible for an individual to own and tender odd lots from multiple brokerage accounts?

    1. K.Simon

      Yes – I’ve done this before, but have also heard of situations where people attempted to tender multiple accounts and were disallowed completely. In my opinion, the difference seems to be tendering through brokerages with different clearing houses.

    2. work 22

      no. they can track your tax ID. In the electronic age its easy to stop

  8. wlblount

    so the gist of this (I am a newcomer) is that most of these split-offs will be oversubscribed so with 500 shares, you will only get a fraction which makes hedging the merger-sub too risky. at 99 shares you are guaranteed the full position?

  9. Rick Sanchez

    I was able to get some AIMC shares to short but looks like it became hard to borrow in last week; will look at options to short

  10. Andrew

    What is the expiration date for the FTV tender off if you are an odd-lot share holder? Thanks

  11. Random Deals

    Next time, can you please change the expiration date from TBD once you are aware that it’s announced? I missed this opportunity because I only checked the date at the top of the post. Thanks.

    1. dt

      Good point. Thanks.

      Depending on the broker you might still be able to purchase and tender today or even tomorrow (IB has tender deadline at 1pm on the 25th of Sep.

      The upside remains at 9%.

  12. Nathan

    How long does it take in IB before the shares are actually delivered and one is able to trade AIMC shares exchanged?

  13. Jim Rivest

    “what? that is the lowest i’ve seen in a long while for RMTs.”

    mcg, I have stats for the last 13 RMT’s and they averaged less than 5K odd lots. Could you share with us the ones we are missing that are well over 10K?

    1. mcg mcg

      Apologies for the late response, wasn’t checking this board. (DT, we need notifications!)

      Since word started getting out via SA etc odd-lot participation has been significantly higher. All the RMT’s since 2016 have had participation >10k

  14. Jim Rivest

    I just updated my old RMT spread sheet. I had the first 13 RMT deals and they averaged just under 5K odd lots when averaging all 13. The last 5 deals were all over 10K odd lots (assuming 99′ers).

    All RMT’s are not the same. LDOS was a grand slam, so not surprising it was the most popular, while some of these deals were marginal, so also not surprising they were not heavily played.

    The one data point that is striking – recent deals have seen much more odd lot participation than the older deals.

    Split-off………Odd Lots
    CMG……………2693
    UFS…………….1829
    KBR…………….2232
    RAH……………5395
    SJM……………4920
    MJN……………1879
    AXLL…………..5877
    ZTS………….,..7678
    TPH……………3255
    OUT…………..4352
    OLN……………3451
    SYF…………….7761

    Latest 5:

    BXLT…………13,220
    LDOS………..18,441
    COTY………..15,037
    ETM………….12,024
    AIMC…………10,555 (prelim)

    1. Chris Radigan

      The LDOS deal was a little different because LMT was trading at $250 per share. This snagged a lot of shares that weren’t necessarily people buying just to do the deal.

      I don’t think BXLT, SYF, OUT and ZTS were RMT deals. They were IPO’s followed by split-off transactions. AXLL is as far back as my info goes.

      Also, you missed the DHR/NTCT deal back in 2015.

  15. Gerald Peters

    Are professionals who shorted shares of AIMC still short the shares? Would they be closing out their shorts when the exchange ratio was announced or when shares of AIMC are distributed to the account? If the short positions are still outstanding would that be bullish for AIMC once the shares from the tender are distributed?

    1. Chris Radigan

      Arbitrage funds are still short AIMC. They will use the shares they receive from FTV to cover their short, so that they don’t need to do anything other than wait for the shares to be distributed.

      So, this is a non-event for the shares.

  16. work 22

    i got bought in on my AIMC short hedge today. If the institutions are already short, and receive shares of AIMC to flatten out their short AIMC, long FTV positions, there’s no real effect on the stock theoretically. It was already sold off when they put on the AIMC short ahead of time. Now if everyone gets AIMC stock at once and wants to sell…thats another story

    1. Rick Sanchez

      I also got my short hedge in AIMC closed by broker 9/27, which realized a loss for me. I wonder if I should have shorted synthetically via options now

  17. Jim Rivest

    Thanks Chris, I’ll add NTCT to the list. I did the deal but forgot about it.

    I conflated RMT’s with split-off’s. They are not one and the same, I meant to write actionable split-offs. Some RMT’s aren’t actionable as they are folded into a private company, and if I recall correctly, Buffett took one away from us when he bought the company outright.

    Gerard, the big boy pros are still short the stock and also use various option schemes. I heard some thought proration would be ~9%, so 11.6% was a bit higher than expected, so if anything a bit more shorting probably occurred. The borrow is tight but these ‘hard to borrow’ shares are still available to short at some brokers, but you’ll pay a little. The stock price should be helped a bit when shorts are being covered.

    1. mcg mcg

      Yes, some sell side shops were forecasting 9%-10%. My estimate was 11.85% so I ended up being pretty close on it.

  18. Jim Rivest

    I just checked my broker for availability and cost in shorting AIMC. The current borrow rate for this ‘Hard to Borrow’ security is 6.75%. It was 4% two days ago.

  19. Jim Rivest

    My short hedge hasn’t been called in yet, but the cost went from 6.75% to 22.5% to 35% currently. I’m happy there is a large short position. A lot of folks will be heading for the exits immmediately including a decent portion of the million share odd lotters (small time arbs). If everybody was on the same side of a long-only boat without any short covering, the price would sink.

  20. Jim Rivest

    Lots of moving parts.

    Fortive Corporation (FTV)

    For the better part of the past two weeks, Fortive options have wound their way into the top 10 most active options listing. News has been scarce on the company, but the driver for this unusual activity is more than likely Altra’s $3 billion acquisition of four of Fortive’s automation and specialty businesses.

    While FTV has seen incredibly unusual options activity for weeks, yesterday was the last day to officially get in on the merger deal for shareholders. This led to a considerable spike in FTV options volume, with more than 635,000 contracts changing hands — or about 5.5 times FTV’s daily average. Calls and puts were split down the middle.

    The acquisition is being structured as a Reverse Morris Trust and is tax free to shareholders. Meanwhile, the driver for this excessive call activity is likely options arbitrage related. In this case, traders sell out-of-the-money calls to gain control of the shares just long enough to profit from the merger deal.

    As of this writing, Joseph Hargett held no positions on any of the aforementioned securities.

    1. Prateek Kumar

      Anyone know if shares have hit accounts at Merrill Edge yet? I still don’t see my AIMC shares there

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