Brookfield Property REIT (BPR) – Tender Offer – 8% Upside

Current Price – $19.37

Tender Price – $19.0 - $21.0

Upside – 9% (if priced at the upper limit)

Expiration Date – March 25th, 2019

SEC Filling

This idea was shared by Brian

 

This is similar tender to BPY (same economic interest and distributions, just a different legal entity) that was just posted on the site. So please refer to that post for further details.

BPR launched $95m dutch tender at $19-$21 with odd-lot provision. Shares currently trade close to the lower limit. Tender is for approximately 4.5% of the company. Brookfield Asset Management owns 6% of the stock and does not intend to tender. Proration is likely to be high.

22 COMMENTS

  1. financialwhiz

    Tough to know what to tender at since there isn’t an option to tender at the clearing price. I’m going to wait until it’s closer to the tender date to make an election. If we are below $20, probably bid at $20, if above $20 probably will bid $21, but that is my personal strategy, others may have a more scientific approach.

    1. dt

      Tendering the the lower limit is equivalent to tendering at the clearing price and guarantees that odd-lot position will be accepted at the final tender price (baring any unforeseen circumstances).

  2. Highdyk

    Are CFD’s adapted for the tender? IB has them on BPY, so if you buy the stock, short the CFD, will that make sense?

    1. dt

      I have not traded CFDs, but my understanding is that owners of CFDs do not have the option to tender.
      At the moment I do not see any interesting way to play this by hedging through CFDs – too many unknowns including eventual tender price and how will the share price react when tender results are announced.

      1. dt

        In what way would they be adjusted? I can understand adjustments for dividends, stock splits etc. But how would this be done for a 5% tender?

        1. Writser

          As far as I know they are adjusted in the same way as a long / short position in the underlying stock would be affected. See for example IB:

          “In the event of a corporate action on the underlying security of a CFD, the broker will generally reflect the economic effect of the corporate action for CFD holders as if they had been holding the underlying security. This will be done through a cash adjustment, a position adjustment, delivery of a new security or CFD, or a combination of these. In cases where the corporate action is complex and the broker is unable to determine an accurate adjustment, the CFD position may be closed out prior to the ex-date.”

          https://www.interactivebrokers.co.uk/en/index.php?f=deliveryExerciseActions&p=corpActionCFDs

          I’m guessing more obscure CFD joints have a bit more freedom to determine what to do with their positions.

          @mcg: you are correct, it is not completely risk free. But if a stock is trading at $16 and buying back 10% of shares outstanding at 18 then I’d say it is a pretty good idea to buy 100.000 shares at $16, short 100.000 CFD’s at $16 and tender your position – if the CFD will not be adjusted!

          It’s a position that the CFD issuer cannot hedge and is very likely to lose money with.

          1. mcg mcg

            I think you are wrong in the sense that those adjustments apply to mandatory actions, not voluntary.

            1. Writser

              The IB explanation page lists ‘tender offer’ as an option – that’s a voluntary action right?

              Also see the supplemental terms for IB CFD’s:

              https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=3331

              In case of a tender offer / exchange offer or when a hedge is cancelled an ‘adjustment event’ is triggered and IB can adjust the CFD, apply credits or debits to your account or do ‘any adjustment as reasonably determined is appropriate’.

              If you think about the example I gave (stock at $16, company is tendering for 20% of shares at $18) there is no way IB will offer you a short CFD that will not be adjusted for the tender offer. The assumption that you can tender 20% of your shares is already ‘baked in’ in the current share price (i.e. it is probably too high – shot up after the tender offer announcement because of arbs) and a short position that is not be adjusted for the tender offer would be very profitable in the long run.

              And IB cannot hedge this position because if they short shares then the short position WILL be affected by the tender offer (otherwise you could buy shares at IB in one account and short a position in another account).

              Though to be fair, I haven’t tried it yet. Maybe it’s a big opportunity but I’d be super skeptical.

              In general most of these CFD joints have very liberal T&C’s so I guess that if you make a nice profit they will either adjust / terminate the CFD or claw back your earnings and say: “it’s allowed according to our T&C!”. Which is why you should be very careful with bucket shopts offering CFD’s / binary options / etc.

              1. mcg mcg

                This is all academic honestly since you can’t trade CFD’s in the US.

                Short positions in a tender have liability risk
                Long positions can either participate or not
                Tender offers are voluntary in nature, but can be structured in a way to squeeze out remaining shareholders (think mergers)

                IB may take their aggregate short assignment and adjust cfd’s accordingly, but the terms you posted are unclear. That being said there are other ways to short tenders without liability risk (all options cost some sort of premium over spot though)

              2. mcg mcg

                I can’t seem to reply to you directly AV.

                —-

                The short tender law doesn’t apply to what I’m referring to.

      2. mcg mcg

        What is risk free about it, long 99 shares that get accepted, short 99 shares worth of cfd is not risk free because the market could trade higher post tender

        1. over2u

          Exactly, you don’t know a proration rate – so if you short 100 shares and you have got accepted 20% of your long shares, you will have uncovered 20 shares the price at which can either go up or down.

          But anyway – the same you can do from the different account at the other broker with shares, not CFDs

          1. mcg mcg

            > so if you short 100 shares and you have got accepted 20% of your long shares, you will have uncovered 20 shares the price at which can either go up or down.

            not exactly. Your short side will have liability so you will have stock called away

            > But anyway – the same you can do from the different account at the other broker with shares, not CFDs

            also don’t do this because it is illegal. https://www.law.cornell.edu/cfr/text/17/240.14e-4

  3. Michael Lax

    Do you have any historical data on pricing of tender offers, i.e. what percentage price at the lower end, middle upper end? Any factors likely to affect pricing on tenders?

    1. dt

      It is really case by case situation and I do not think that historical insights of previous tenders by other companies would provide any valuable information here.

  4. Michael Lax

    How do you make an informed decision as whether it is wise to participate in tenders, i.e. are there factors which make it more likely to price at the low or high end?

  5. Terence

    Price now is around the middle of the tender range. DT, why do you say proration is likely to be high?

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