After markets closed on Friday, Exxon Mobil Corp. (XOM) announced that the company had received notice of an unsolicited mini-tender offer by TRC Capital to purchase up to 2 million shares (approximately 0.05% of shares outstanding) at a purchase price of $78 per share. Exxon's stock closed at $81.61 on March 10, 2017, the last business day prior to TRC Capital's offer.
Mini-tender offers are not popular with companies that get targeted because the offers have a negative effect on share prices. If an investor tenders shares in this offer, TRC Capital gains about 4.6% over the offer price and may resell the shares for a tidy profit. The tender offer for Exxon shares expires at one minute after midnight on April 11, 2017, but TRC Capital may extend the offering period.
TRC Capital made a mini-tender offer for Kinder Morgan Inc. (KMI) stock in late 2015. In that case, the firm offered to buy up to 4 million shares at a discount of around 4.5% to the closing price of the stock on the day the offer was announced.
The U.S. Securities and Exchange Commission (SEC) is not a fan of mini-tender offers either. In its notice to shareholders released Friday, Exxon points to a 2008 SEC publication that warns investors of some pitfalls of accepting such offers:
"Mini-tender" offers – tender offers for less than five percent of a company's stock – have been increasingly used to catch investors off guard. Many investors who hear about mini-tender offers surrender their securities without investigating the offer, assuming that the price offered includes the premium usually present in larger, traditional tender offers. But they later learn that they cannot withdraw from the offer and may end up selling their securities at below-market prices.
If you've been asked to tender your securities, find out first whether the offer is a mini-tender offer. And remember that mini-tender offers typically do not provide the same disclosure and procedural protections that larger, traditional tender offers provide. For example, when a bidder – the person or group of people behind the offer – makes a tender offer for more than five percent of the company's shares, all of the SEC's tender offer rules apply.
The SEC also wrote a detailed letter in 2001 responding to a Security Industries Association query regarding the role of broker-dealers in connection with mini-tender offers.
Exxon's stock closed at $81.30 on Friday, up about 0.1% on the day, in a 52-week range of $80.31 to $95.55. The average price target on the stock is $87.91, according to MarketWatch.