Deal Killer:"No special consideration or priority will be given to shares held in “odd lots.” "
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This tender offer is now official, but it could have been anticipated. There was a March 31, 2008 SEC "TO" filling announcing the intention of this action which was in response to a tender offer by activist investors Laxey Partners Limited (Laxey).
The quote below is from the SEC filing of the ASA press release (bold added):
BUFFALO, NY, March 31, 2008 /PRNewswire/
The Board of Directors of ASA Limited (NYSE: ASA) today announced that it has authorized a tender offer to purchase up to 25% of the Company’s outstanding shares at a purchase price of 98% of net asset value (NAV) on the date the tender offer expires.
In addition, the Board has approved subsequent annual tender offers in fiscal year 2009 and 2010, each for 10% of the outstanding shares at a purchase price of 98% of NAV on the date the tender offer expires. The Company would proceed with the subsequent tender offer in 2009 or 2010 only if its shares have traded on the NYSE during a selected 12 week measurement period (the “Measurement Period”) at an average discount from NAV of greater than 10%, determined on the basis of the average of the NYSE closing price and the discount per share as of the last trading day in each week. The Measurement Period will commence on a date designated by the Board of Directors in its discretion.
The Board of Directors also has recently authorized the Company to repurchase its shares in the open market at discounts from net asset value. These repurchases will benefit shareholders by increasing net asset value per share. The Board believes that the tender offer program and the share repurchases in the open market taken together represent a balanced and responsible allocation of Company assets by providing added value to shareholders who wish to tender their shares when discounts have been at persistent high levels and enhancing NAV to all shareholders through the Company’s purchase of shares at market discounts that are attractive from an investment perspective and are accretive to NAV.
CEO Robert Irwin stated that the Board has opposed the major tender offer program proposed by a group of dissident shareholders managed or advised by Laxey Partners Limited (Laxey), which calls for unlimited semi-annual tender offers regardless of discount levels, because of the significant negative impact it would have on the Company’s expense ratio and investment performance and the adverse tax consequences to many shareholders due to the Company’s status as a passive foreign investment company (PFIC). He acknowledged that these concerns were also present in the Company’s program but to a significantly lesser degree. He stated that the decision to announce the tender offer program was based on strong views communicated by significant shareholders, which made it apparent to the Board that a tender offer program that balanced the interests of short-term and long-term shareholders would be in the best interests of the Company.
This MAY provide a useful vehicle for the odd-lot preference play, or in this case it MAY be better to just accept the proration.
Either way, the deal seems attractive, if you don't mind having exposure to gold at this particular time. Gold does not "look good" here, but between now (June 14) and July 11, the price of gold and gold shares is a coin flip.
Oddly enough, it seems that ASA has picked about the worst possible time to make this offer, unless they want to minimize new holders being created by the offer.
While I really don't know, it still seems reasonable to guess that the offer will be over subscribed, though perhaps not greatly oversubscribed.
The bottom line is that if there is an odd-lot preference in the offer (which seems standard) then the odd-lotters will have a better risk-reward ratio than the professional arbs (or Laxey Partners).
The proxy submission forms seem not yet to have been filed with the SEC yet. (Check the SEC ASA Filings periodically).
Conservatively, one would need to confirm that the odd-lot preference rule is in place. Still, since the offer is for one quarter of the outstanding shares, it is hard to believe that it could be double oversubscribed.
I plan on picking up 99 shares at the open on Monday 6/16, unless the premium strinks to less than 5%, in which case I will "ponder the question". If all goes well, I can add 99 shares in four other accounts.
The only thing I don't like about this deal is the gold risk.