Not every offer to acquire shares of a company you hold is a good thing. Yesterday, pharma giant Pfizer (NYSE:PFE) recommended that shareholders not tender their shares in a mini-tender offer initiated by a small Canadian investment company called TRC Capital.
Mini-tender offers are just like other tender offers to acquire shares of a company, except that the total amount of stock the outside company is willing to acquire is less than 5% of all shares outstanding.
Companies like TRC Capital, which offered $25 a share for Pfizer yesterday, do mini-tender offers because offers for less than 5% of all outstanding shares of a company's stock don't have to follow SEC tender offer rules, which protect shareholders from abuse. For instance, shareholders can rarely back out of a mini-tender offer, and they can have their shares locked up in the offer for months or years.
TRC has been involved in the mini-tender offer game for years, making similar offers to Abbott (NYSE:ABT), Sara Lee (NYSE:SLE), and Schering-Plough (NYSE:SGP) shareholders. Here's a link to my last piece on the company, as well as a more detailed explanation of mini-tender offers and why shareholders should never get involved in them.
TRC and other companies doing mini-tender offers know that a certain portion of shareholders will always be confused or duped into tendering their shares. There's no downside to TRC initiating such an offer, because if Pfizer's shares drop below the mini-tender price of $25, TRC will simply rescind the offer without purchasing the shares. If Pfizer's stock stays higher than $25, TRC will get shares at a discount. Investors would do better to sell shares on the open market rather than as part of the mini-tender offer.
Mini-tenders are always a win-win for TRC and other companies engaging in them. Likewise, they are always a lose-lose for investors. Don't make the mistake of offering up your shares in this (or any) mini-tender offer.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Pfizer is an Inside Value recommendation. The Fool has a disclosure policy.
