Tribune Co. and Navigant Consulting: Two Tenders Offers, Two Very Different Outcomes

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the market of bulls, it was the market of bears, it was a period of expansion, it was a period of recession, we were awash in liquidity, we were buried in debt.

There were tender offers that appeared as plain as day. It was clearer than crystal that tender offers could provide investors with opportunities. So I set forth with investments in Tribune Co. (TRB) and Navigant Consulting (NCI).

It was May 1, 2007. Sam Zell was offering cash for shares of Tribune Company, so I bought 99 shares for $32.76 per share. The tender offer was set for $34.00 per share up to 126 million shares. As you might have guessed by the number of shares I bought, odd lots (lots held by owners of less than 100 shares) would not be prorated if the offer was oversubscribed. The result of this little transaction was beautiful.

On June 8, 2007, I found that $3,341.00 in cash had arrived in the Special Situations Real Money Port. That was a net return of $90.81, which is a return of 2.8% after expenses. That might look like a rather meager return, but it actually is a 26% average annualized rate of return since the transaction only took 39 days. That’s right in line with the Special Situations Real Money Port internal rate of return.

The second tender offer began on May 10, 2007 when I purchased 85 shares of Navigant Consulting for $20.65. I only bought 85 shares because thankfully I ran out of cash in the Special Situations Real Money Port. Normally, I would have bought 99 shares for a tender offer with an odd lot preference in order to maximize my return.

The Navigant Consulting tender offer was a modified “Dutch auction” with a price range from $22.50 to $19.50 per share. I usually try to avoid buying into tender offers when shares are trading significantly above the lower end of the tender price range. However, I figured that I would be safe if I made my tender conditional on the offer being above $20.75. I’ve observed that stocks tend to go up after tender offers are completed so I figured I would be safe if my tender was not accepted due to the condition I added.

Well, Mr. Market had other plans. The market took are rather big tumble right before the June 7th expiration date for the tender offer. The tender offer ended up significantly oversubscribed. Everyone wanted to be cashed out of NCI it appeared. The final tender offer ended up being for $20.50 so my shares were not accepted. At the end, Navigant Consulting accepted for purchase 10,623,624 shares of its common stock at a purchase price of $20.50 per share. Since the tender price was below my conditional offer, my shares were not cashed out.

Then something strange happened. The price of Navigant Consulting shares plunged to $20.36 on June 8th and it is now trading around $20. As of June 19th, I’m down 3.7% or $64.75 on this trade.

This unexpected result for the Navigant Consulting tender offer caused quite a stir at Fat Pitch Financials Contributor’s Corner. Shareholders could have gotten a better sale price just about anytime during the month of May. This transaction was for 19% of outstanding shares, which is a larger than average tender offer. Some members speculated that the resulting low offer was caused by the announced earnings that came in below trend just before the tender offer announcement. Others thought that all the liquidity in the market is just looking for relatively safe opportunities like tender offers. Are hedge funds and private equity now invading and overwhelming tender offers? Maybe it was just folks ducking for cover as the market looked like it was starting a tumble.

Two tenders, two very different outcomes. One was for a large-cap company and for fixed price. The other tender offer involved a mid-cap company and the offer involved a price range to be determined by a modified Dutch auction. One was profitable and the other was not. At the end, it was a wash.

It will be interesting to see how the next few tender offers work out. It might be time for me to move back to focusing on going private transactions, but maybe this really does not mean anything given the results of the Tribune tender offer. What do you think?