Level 3 Communications is warning investors about Canadian investment firm TRC Capital’s “mini-tender” offering. TRC is offering to buy up to 2 million shares of Level 3’s stock for $50.50 per share, a price that is 4.3 percent lower than Level 3’s closing stock price of $52.77 on September 22 and 5.4 percent lower than Level 3’s stock closing price on Friday of $53.29.
In a statement, Level 3 said that it had been notified of the unsolicited mini-tender by TRC and that this offer represents 0.55 percent of Level 3’s shares of outstanding common stock. The company also recommended that investors reject the offer, which is scheduled to expire on October 25.
Level 3 is in the midst of being acquired by CenturyLink. The deal, which was first announced nearly a year ago, is a cash and stock transaction valued at about $24 billion, or $34 billion if the assumption of debt is included. According to Level 3 spokeswoman Stephanie Walkenshaw, this mini-tender offering will not impact the closing of that deal, which is expected to occur this month.
But why would any investors sell their shares to TRC for a price that is below-market value? TRC is hoping to snare uninformed investors who might think they need to sell their shares prior to the CenturyLink acquisition.
Mini-tenders are structured so that the buyer acquires a small proportion of shares in a company — typically under 5 percent. By buying this small of a fraction of shares, the buyer can avoid regulatory rules regarding financial disclosures. The Securities and Exchange Commission (SEC) takes a dim view of the practice.
In fact, the SEC warns investors about this type of practice on its website, noting that investors often assume the mini-tender offer is a premium price even when it isn’t, and when they figure out that the price is lower than its value, they cannot withdraw from the offer and end up selling their shares at below-market value.
TRC has made a business out of mini-tenders. The company issued a similar offer in late August for shares of Ionis Pharmaceuticals and in March for shares of Canadian telecom firm BCE.