Gain Capital (GCAP) – Tender Offer – 7% Upside

Current Price – $7.42

Tender Price – $7.24 – $7.94

Upside – 7% (if priced at the upper limit)

Expiration Date – November 6th, 2018

No proration for odd lot holders

SEC Filling

 

This is rather standard Dutch tender offer with odd-lot provision – 7% upside (at upper limit) and 2.5% downside (at lower limit). Due to recent market sell-off shares have somewhat declined from the after announcement levels and now trade closer to the lower limit.

Few more positives on this tender:

- It is quite large – $50m or c. 15% of the outstanding shares.

- After the tender expires the company will still have $26.3m in buyback authorization (another 8% of the outstanding shares).

- Company has already repurchased substantial amounts of stock over the recent years ($9m in 2016, $26m in 2017 and $8m in H1 2018)

- Management and directors own 7% of the shares and do not intend to tender.

- Four largest investors own 49% of the shares and might not be interested in tendering at the range where GCAP shares traded over the last year.

- Company sits on material pile of excess cash (almost 40% of market cap), is undervalued relative to peers and presents an interesting investment from longer term perspective (for further details see this VIC write-up from April).

Taking the above into account I believe there is significant chance that the offer will be priced at the upper limit or even end up under-subscribed, in which case those not participating in the tender will benefit the most.

For odd-lots beware of the recent BLBD fiasco.

8 COMMENTS

  1. YVRtrader

    In normal market conditions, I would have a very large position in this one. Since the start date was Oct.8th I’ve been cautious because of the 10% market decline condition.

    “Are there any conditions to the Offer?
    Yes. Our obligation to accept for payment and pay for your tendered Shares depends upon a number of conditions that must be satisfied in our reasonable judgment or waived on or prior to the Expiration Date, including, among others:
    no decrease of more than 10% in the market price of the Shares or in the general level of market prices for equity securities in the United States or the New York Stock Exchange Index, the Dow Jones Industrial Average, the NASDAQ Global Market Composite Index or Standard & Poor’s Composite Index of 500 Industrial Companies measured from the close of trading on October 8, 2018, the last full trading day prior to the commencement of the Offer, shall have occurred;” – pg.8 of Offer to Purchase

  2. Michael Lax

    You stated that “Taking the above into account I believe there is significant chance that the offer will be priced at the lower limit or even end up under-subscribed, in which case those not participating in the tender will benefit the most.”. I am curious as to the basis for this; if the largest shareholders may not be interesting in tendering at current prices and the tender is for 15% of the shares, why assaume that the tender will be priced at the lower limit?

    1. dt

      That was a typo. I meant to say it is likely to be priced at the upper limit. Now corrected.

  3. Ben

    For the tender, it seems we could surpass the general market decrease of 10% clause. Do folks think they would revise or postpone the tender because of this?

  4. dt

    Do not think so. Management is interested in returning cash to shareholders and if due to market downturn there is a chance of buying shares cheaper, then they will be happy to take it.

    If gcap traded below the lower limit, then situation would be different. But that is not the case.

  5. dt

    My prediction that GCAP tender will get priced at the upper limit was quite close. Also shares remained around upper limit levels after tender expiration.

    Overall nice 5.5% return in couple of weeks.

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