New Senior Joins the Tender Offer Parade

New SeniorNew Senior Investment (SNR) joins the ranks of the many companies participating in a tender offer. The company is offering to purchase up to $30 million of its stock, or between 3.5% and 3.9% of its outstanding shares, depending on the purchase price (and can up it by another 2% of shares if they want). It’s offering to buy at a price between $9 and $10 per share. With the stock now at $9.91 and bouncing on the news, there’s no chance of a risk-free profit here, however. So for those investors looking for a quick buck and who didn’t already own the stock, it’s probably better to move on. But the tender offer does have my favorite provision for small shareholders, the odd lot provision.

That is, there is an odd lot priority for up to 99 shares, but with the stock so close to the top end, there’s little chance to make money. Plus, they risk not selling their shares in the offer and often brokerages will tack on fees. This is not really my style, and I’d prefer something that was nearly risk-free, as in a traditional tender offer at a fixed price.

No directors or officers of the company are participating in the tender offer, and that’s generally a good sign for the long-term outlook on the business. If the offer is fully subscribed, insiders will own 7.5% of the company, and as much as 7.7%, if they increase the tender offer by another 2% of shares.

Of course, a tender offer itself is usually a good sign that management is looking to create shareholder value. And with the stock down by more than 50% since its high in Q4 2014, this looks like good capital allocation. It’s all the more unusual given that New Senior is an externally managed company and managers would generally prefer to roll any liquidity into more fee-earning assets rather than prop up a sagging stock price. The stock now yields 10.5%, and the buyback helps secure the dividend.

New Senior will pay for the tender offer with cash on hand, more than $130 million. So it should have no problem affording the purchase even if the maximum number of shares were tendered. The offer expires on January 19, 2016 unless extended. You can read further details at this SEC filing, and you can see all the recent tender offers on this page.

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