It seems that my last article was a bit harsh on SunAmerica, the AIG subsidiary that manages two closed-end funds (FGF and FGI) which are currently making "in-kind" tender offers to buy back their own shares. (30% for FGF and 25% for FGI, both at 98.5% of net asset value.) The article complained that the way the offers were structured, so as to give participants a pro-rata portion of every security held in their fund's portfolio instead of a cash payment, made it impractical for small shareholders to take part. Those who tried would find themselves holding a grab bag of odd lots in 21 (NYSE:FGI) or 30 (NYSE:FGF) different companies, awkward to hold and expensive to sell.
However it would be relatively easy for the large institutional investors that have accumulated sizeable positions in FGF and FGI to turn around and sell whatever securities they might receive. Indeed, that earlier article speculated that the advantage given to large holders might possibly have been intentional -- "not a bug, but a feature" -- in order to cash out activist hedge funds like Bulldog Investors that had challenged SunAmerica's control over the funds, while keeping smaller holders locked in indefinitely.
Such suspicions can now be put to rest. SunAmerica, it seems, has listened to what Lincoln called "the better angels of our nature". After the market close on November 4th, FGF and FGI both announced that they "will pay cash in lieu of delivering any 'odd lot' of portfolio securities (i.e., fewer than 100 shares) to a participating shareholder." In connection with this modification, they also extended the offering date by one week, to November 18th.
Small shareholders who now decide to participate can expect to get real money. Based on the holdings listed in the last semi-annual reports, a FGF shareholder who tenders 2,500 shares and has all accepted would receive 30 odd lots -- which now means "all cash". The comparable number for an FGI holder would be over 3,000 shares. Someone who tenders more shares and has them accepted may get a round lot or two -- Quest Communications (NYSE:Q), perhaps, or Dow Chemical (NYSE:DOW) -- mixed in with the money, but this still would be much more manageable than that 30 odd-lot grab bag.
The mystics say there are three stages of enlightenment. At first, there is just darkness, ignorance and animal instinct. It appears that SunAmerica has now risen to the second stage, the "letting-go", where FGF and FGI no longer cling to material things, such as "total assets under management." At the third and final stage, the sages say, existence itself is no longer important, so entities like FGF and FGI (which never had any real rationale for existing in the first place) can finally depart this world of illusion.
Let's hope so.
Disclosure: Long FGF