Odd-Lot Tender Offer – $770+ Upside
This is an interesting tender offer setup, which merits close monitoring until further details about the odd-lot provision are disclosed.
Talen Energy has commenced a dutch tender offer to purchase $600m worth of shares (8%-9% of shares outstanding) for $116-$122/share. TLNE currently trades at $108/share, substantially below the lower tender limit. At the moment, it’s not fully clear whether odd-lot provision will be included in the offer. TLNE emerged from a bankruptcy only a year ago. It still trades on OTCQX exchange and doesn’t report with the SEC. Therefore, the available information on the tender, besides this this press release/tender announcement, is unavailable. The PR has only one mention of “odd lot” and it’s pretty vague:
Acceptance of validly tendered Shares may be subject to priority, proration and “odd lots”
Most tender offers in the US feature an odd-lot provision, so it’s quite likely that Talen Energy’s offer will include one as well. At current prices, the potential gain from a full odd-lot position could be $770. I’ll keep an eye on this opportunity and update the board as more details become available.
Another unusual aspect here is that this tender is structured in two stages. While the final expiration date is June 27, the company has also set an “Early Tender Time” for June 12. If by this time (June 12), enough shares are tendered so that the offer is fully subscribed, the company will just purchase the shares and warp up the offer early. The important catch here is that in order to receive the full tender consideration of $116-$122/share, shareholders have to tender by the Early Tender Time (June 12). If you tender after that, the payment will be lower by $3/share (i.e. the tender range will drop to $113-$119/share). So far, it’s not clear whether the company will update shareholders on the odd-lot provision by that time.
Talen Energy is a pretty big ($6.8bn market cap) company, which owns power generation infrastructure assets in the U.S., including a nuclear power plant and natural gas/coal power generation assets. Having recently emerged from bankruptcy, the company is currently trading on the OTC market and is planning to uplist to a national securities exchange this year. Looming uplisting sort of explains the unusual tender structure and the rush to wrap up the buyback early. The tender will be partially financed by the proceeds from this large recent sale of a data center campus to Amazon for $650m.
At a quick glance, TLNE doesn’t really look substantially undervalued right now. Since emerging from bankruptcy, the stock price has already more than doubled, and the company is currently trading at around 11x 2024E EBITDA, which aligns with its peer Vistra. Similarly, Vistra recently purchased Energy Harbor’s nuclear assets, also at 11x EBITDA multiple.
For more information on the company, please refer to this VIC write-up and Alluvial Capital’s Q3’23 letter.
Conditions to the tender offer include:
“No decline shall have occurred in the Energy Share Basket (as defined below) of more than 10%
from the close of business on May 28, 2024. The appreciation or decline in the “Energy Share
Basket” at any time shall mean the arithmetic average percentage appreciation (expressed as a
positive number) or decline (expressed as a negative number) from May 28, 2024, of the reported
trading price per Share for the common stock of each of the following: (i) Vistra Corp. on the New
York Stock Exchange, (ii) Constellation Energy Corporation on the Nasdaq Stock Market and (iii)
NRG Energy, Inc. on the New York Stock Exchange”
This basket is currently at -12%. Buy at your own peril.
where did you find this condition? I don’t see it in any of the links above
Hi writser – can you provide a link to the tender offer conditions (that you referenced above)? I couldn’t find them anywhere, including the Company’s website/filings/or this writeup. Thanks!
Writser, would you be able to provide a link to the terms? I can’t find anything. Thanks.
I have tried to get in contact with Investors Relation to see whether they want to share it. I will post it here if I manage to get it.
Here’s the Offer to Purchase:
https://www.dropbox.com/scl/fi/pw3zsirmdj2uwqv7s3mut/Talen-Offer-to-Purchase-Final.PDF?rlkey=ofbeviytkuw5q3ilkn9x7p1w3&st=ufkg6s2l&dl=0
My calculation has the basket at an 8% decline at the moment (and not counting dividend CRG issued on 29th) ?
They could easily waive this provision, do they really want to blow up their tender over a minor bit of volatility?
DT or anyone who’s looked at this – what’s the history of tender offers being cancelled/price adjusted due to 10% and similar clauses?
More often find that the odd-lot provision is removing from there being too many odd-lots
From my own experience, tenders are very rarely cancelled to due ‘market moves’ condition (in this case the energy basket), whereas odd-lot priority has been removed only in a couple of instances over the last decade. But this could easily turn out to be one of the exceptions.
Dt is correct, tender offers are rarely cancelled due to these conditions. Covid onset was different, as companies looked for ways to cancel the already launched offers in the face of uncertainty.
A few examples below:
1) DCBO’s tender offer in late 2023 also had a similar condition, which was breached, yet the offer closed successfully.
https://www.specialsituationinvestments.com/2023/11/quick-pitch-docebo-dcbo/
2) CZZ had a tender offer in late 2018. Despite specified indices declining by more than the 10% threshold, the tender closed successfully.
https://www.specialsituationinvestments.com/2018/12/cosan-czz-tender-offer-7-upside/
3) GC.TO had a tender during COVID with a condition tied to S&P 500 or Dow Jones Industrial indices falling 10%. The tender was later amended and ultimately canceled due to the coronavirus.
https://www.specialsituationinvestments.com/2020/03/great-canadian-gaming-gc-to-odd-lot-tender-offer-c360-upside/
4) MGM had a similar tender canceled as its stock price fell by more than 15% from pre-announcement levels, but this occurred during COVID, so external factors played a significant role.
https://www.specialsituationinvestments.com/2020/02/mgm-resorts-international-mgm-odd-lot-tender-offer-230-upside/#comment-6577
I haven’t verified this link. But worth a shot
https://x.com/alvarogomezolea/status/1798327084554797153?t=og6LLfTjIh6CcQplDt28mw&s=19
Section 7.(6) to me looks like the basket already hit -10% which would allow them to pull the tender.
Paddymcilvenna would you be able to provide a link to the terms?
-8% at the moment.
-13% at close today
This makes no sense. They actually incentivize people to tender with a $3/share bonus, meaning, they badly WANT to purchase these shares.
IMHO the stock is easily worth $150-180 over the next 2-3 years.
first, from all stockholders of “odd lots” (persons who own fewer than 100 Shares) who validly
tendered all their Shares at or below the Clearing Price prior to the Early Tender Date or Expiration
Date, as applicable; and
• second, on a pro rata basis, with appropriate adjustment to avoid purchases of fractional Shares,
from all other stockholders who validly tendered Shares at or below the Clearing Price prior to the
Early Tender Date or Expiration Date, as applicable.
See link above to the offer to purchase. That’s the one I have.
The motivation of this tender is to be able to repurchase stock in quantity as they cannot repurchase at the pace they would like in the open market. Talen management wants to increase its leverage to 3.5x.
There is a very good explanation of the company in this podcast,
https://open.spotify.com/episode/6d2zlw29ptIvqmegfgNfBP?si=af0d1db5d65c426c
I would be surprised if they canceled this one due to market conditions. In the past, Cumulus fell much more during a tender and it was not canceled for example, and the situation was much worse. I would also be surprised if they fill the tender next week (12th june).
I haven’t made a purchase. For those who have already bought: if you happen to own TLNE via IB, have you seen the notice in Corporate Action Manager yet? What is IB’s deadline for the the early tender? Thanks!
Yes, it appeared 1 hour after the purchase.
According to the message:
“Election period expires: Jun 12, 2024 13:00 EDT”
Do we have any probabilities on whether this will go ahead before June 12? What’s the upside and downside from here? Thanks
I think this offer has rather high chances of getting filled on June 12 mainly because of the extra $3 in for early participants. So all who want to tender, will do so before the early tender deadline.
So if I haven’t purchased yet do you think there is a decent chance I could buy now (at this point missing out on the early tender bonus) but not be able to tender even for $113 (if it is all filled up already)? I don’t think my broker will let me buy today and tender before the early deadline.
It’s broker-specific. On IBKR, you can still buy today and tender until tomorrow, so you would need to contact your broker to figure this out.
Can we double-dip the two-stage tender if the first stage is not fully subscribed?
As the tender range is different for the two stages, is it possible that one can tender two set of 99 shares and be treated as two separate entries in the lottery pot?
I do not think so. The payment for the shares will be made only after the tender closes fully (which will happen either after the Early Tender deadline on June 12 or after the offer expiration on June 27). So in a scenario where you participate with 99 shares in the Early Tender and then buy and tender additional 99 share before the expiration of the offer, you total position will be counted as 198 shares and you will not get odd-lot priority.
Filling the entire $600MM from just the odd lots would require about 52,250 persons with 99 share lots at $116. That doesn’t sound impossible given that this seems to be a fairly popular topic and some people do it for themselves and family members.
“The Company has accepted for payment and will purchase $612,000,000 of the Company’s Common Stock, or 5,275,862 Shares, representing 9.0% of the Company’s outstanding Common Stock, promptly after the Early Tender Time (the “Early Settlement”). The purchase is at a price of $116.00 per share (the “Clearing Price”), which was the single lowest price that would result in an aggregate payment amount equal to the Tender Cap. After giving effect to the priority of the odd lots, the Company will apply a proration factor of approximately 52.5% of the Shares tendered at the Clearing Price. The Company will use cash on hand to fund the Early Settlement.”