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05 Jun 2003, 07:26 PM CDT Rating: 
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Msg. 64 of 81
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MergerTalk: "Mini-tenders" keep companies on edge
5 Jun 2003, 12:06pm ET Story Url: http://finance.lycos.com/home/news/story.asp?story=34417995 By Tom Johnson NEW YORK, June 5 (Reuters) - Lorne Albaum will profess to many things, including being an earnest stockpicker looking for shrewd investments, just like everybody else. What he adamantly denies, is being a conniving manipulator, as some executives like to portray him. As chief executive of a one-man shop called TRC Capital Corp., Albaum is one of a handful of people who routinely make so-called "mini-tender" offers for less than 5 percent of a company's stock, almost always at below-market prices. Tender offers are often used in mergers to formally acquire the target company's shares. Mini-tenders by nature don't serve the same purpose, although they often are launched for undervalued companies whose struggling stock prices by default make them potential merger targets. Mini-tender offers are perfectly legal, but have drawn the ire of the U.S. Securities and Exchange Commission, which explicitly warns investors on its Web site that such proposals "have been increasingly used to catch investors off-guard." Album insists that instead of looking to pick people's pockets, his offers simply allow stockholders with a small number of shares to avoid paying a potentially hefty broker's fee. "I'm not trying to trick anybody here or catch them flat-footed," insists Albaum, whose primary occupation is as a Toronto-based securities lawyer. "I think the investing public is a lot more sophisticated than what these commentators say about widows and orphans being taken advantage of." Indeed, mini-tender offers have drawn a wary eye from regulators since the late 1990s, when the SEC charged Arizona-based IG Holdings with failing to provide investors with adequate information while making such bids. Albaum, to be sure, has never been charged with anything by the SEC, though in response to a plethora of such offers made by TRC, Gaines and others, the regulatory agency published a long list of recommendations for investors in 2001. Since mini-tenders are offers for less than 5 percent of a company's outstanding shares, they are not beholden to normal SEC disclosure rules. The bidder does not have to file the offer with the SEC or even alert the company to their actions. In fact, investors often are not allowed to withdraw their shares from such offers once they are tendered, leaving no room for second-guessing. Companies, worried investors might confuse mini-tenders with real takeover proposals. generally swiftly warn investors not to participate in such bids, hoping to assure shareholders the company is not in play. "We proactively tried to warn our individual shareholders who like our stock and might not pause to compare the price that was offered with the market value of their stock," said Lorrie Paul Crum, spokeswoman for Parker Hannifin (NYSE:PH). The maker of motion and controls systems was the target of a TRC Capital mini-tender this week at a 3 percent discount. "People see the word 'tender' and think it's something else." Crum said. The SEC broadly requires those proposing mini-tenders not to engage in fraudulent or deceptive practices, and make prompt payments after the tender closes. But beyond that it relies on the investment community to report any potential wrongdoing. "The door is open for a lot of potential abuse here because it's not regulated by the SEC," said Margaret Draper, spokeswoman for the Securities Industry Association, which represents more than 600 securities firms. Albaum applauds the SEC's efforts to inform investors and says he often takes extra steps to show he is above-board. For instance, Albaum said he almost always allows investors to withdraw tendered shares before the offer expires. Several companies he has targeted also said Albaum informed them of his offer, even though he was under no legal obligation to do so. So far this year, TRC Capital has targeted mini-tender offers at eight U.S. and Canadian companies ranging from food and consumer products maker Sara Lee Corp. (NYSE:SLE) to farm equipment maker Deere & Co. (NYSE:DE). Albaum declined to talk about how profitable his investments are, but said like all investors he wins some and loses some. For example, he once offered to buy millions of shares of Bethlehem Steel, which later filed for bankruptcy. But others, potentially, have been resounding successes. For example, last year he offered to buy for $12 per share up to 20 million shares of retailer Gap Inc. (NYSE:GPS) , which today trades at more than $18. Likewise, his April offer to purchase up to 3.5 million shares of tobacco company UST Inc. (NYSE:UST) at a 2.5 percent discount to the company's trading price, would have returned more than 35 percent already. He has also dabbled in various merger-related stocks. In March 2002, for instance, he offered to buy up to 4.25 million shares of TRW Inc., which was subject to a takeover offer from Northrop Grumman at the time, for $50 per share. TRW eventually sold for $51.70 per share. But Albaum said quick profits are not his goal. "I invest in companies I think represent good long-term investments," he said. "I'm an old-economy type investor. I like things I can touch and feel, that have good management, balance sheets and long-term prospects. I want something I can hold on to." (The Mergers column appears weekly. Comments or questions on this one can be e-mailed to tom.johnson(at)reuters.com.) » Lycos Worldwide © Copyright 2003, Lycos, Inc. All Rights Reserved. L |
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