Nationstar Mortgage (NSM) joins the ranks of the many companies participating in a tender offer. The company is offering to purchase up to $100 million of its stock, or between 10.3% and 11.9% of its outstanding shares, depending on the purchase price. It’s offering to buy at a price between $8.20 and $9.40 per share. With the stock now at $8.61 and flat on the news, there’s a little chance of a risk-free profit here, however. With the stock in a long-term downtrend, it looks like many investors may be willing to cash out at the low end of the range, and that’s what’s implied by the tender offer, which straddled the stock price, instead of the usual premium. 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 Nationstar Mortgage tender offer does have my favorite provision for small shareholders, the odd lot priority.
That is, there is an odd lot priority for up to 99 shares, so investors could take a flyer on the stock and hope that they can make a quick eighty dollars or so, by putting in an ask price at the high end of the range. However, they risk not selling their shares in the offer, and it’s likely the tender goes off closer to the floor price. That’s 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 nor the majority shareholder FIF are participating in the tender offer, and that’s generally a good sign for the long-term outlook on the business. Of course, a tender offer itself is usually a good sign that management is looking to create shareholder value. Because of the tender, the insiders’ ownership goes up from 67% to about 75% or 76%. In addition, the company is increasing its repurchase authorization from $150 million to $250 million. It’s already completed $66 million in repurchases, and the tender offer accelerates that process. So after the tender offer, more buybacks are probably on the way.
Nationstar will pay for the tender offer with cash on hand, more than $300 million. So it should have no problem affording the purchase even if the maximum number of shares at the high end were tendered. The offer expires on March 11, 2016 unless extended. You can read further details at this SEC filing, and you can see all the recent tender offers on this page.