by Adam Benjamin | October 17, 2013 11:38 am
Disney (DIS) has become the latest target of a stock market gimmick. TRC Capital issued what’s called a “mini-tender” offer to buy shares of Disney stock for less than its current value. TRC has offered to buy shares of DIS for $61 — more than $5 below current prices.
Disney has responded by telling shareholders to ignore the offer, and the SEC has previously issued an “investor alert” about mini-tenders.
So … what’s so bad about these mini-tender offers?
Mini-tender offers — “tender offers for less than five percent of a company’s stock” — try to trick investors into selling holdings for less than their market value.
In short, the company offering the mini-tender offer hopes shareholders don’t look at the deal and instead assume it’s for a higher price than shares are currently trading for, then accept the offer.
In this case, people who accept TRC’s offer would be locked into selling their Disney stock. If TRC bought at $61, then turned around and sold DIS on the open market, it could make a roughly $5 profit, or 8%. And best of all for TRC, it can back out of the offer as soon as it’s no longer profitable (Disney stock falls short of $61).
TRC has a long history of mini-tender offers. Investing Daily gave a full rundown of TRC’s tactics two years ago when the company made a quick series of offers. In the past, TRC has targeted Ford (F), Monsanto (MON) and — just a few months ago — Intel (INTC). DIS isn’t the company’s first target, and it’s unlikely to be the last.
So don’t sell your Disney stock. The company has been flat for the past few months, but not significantly worse than the S&P 500. The company is still sitting on the ESPN cash cow, which looks poised to keep churning out profits, not to mention the wildly popular Marvel and Star Wars properties it owns.
This is not the offer you’re looking for.
For more information about mini-tender offers, see the SEC’s alert here.
Adam Benjamin is an Assistant Editor of InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.
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