Reaction Too Mild to Tesoro's Tender Offer and Frontier's Strong Quarter

First, Tesoro (TSO) received their tender offer on Wednesday.

• Billionaire investor Kirk Kerkorian's Tracinda Corp said on Wednesday that it had begun a tender offer for 16 percent of the shares in western U.S. refiner Tesoro Corp (TSO) at $64 each.
• If successful, the purchase would give Tracinda a 20 percent stake in Tesoro, whose shares were up 19 cents at $59.32.
• Tesoro declined to comment. It has urged shareholders to take no action pending its opinion on the offer, which is due out within 10 business days after the start of the tender.
• Tracinda said in a filing with the U.S. Securities and Exchange Commission that the offer for the 21.87 million shares represented a 36.7 percent premium over Tesoro's closing share price on Oct. 3, when it began purchasing the stock.

The market doesn't seem to be a believer in this and the stock is up mildly ($59s); I bought more since this is a 10% discount to Tracinda's offer. Yes, high oil prices don't help the business but....Risk of course is some sort of rejection by Tesoro....Second, Frontier Oil (FTO) amazes! Are you kidding me. In a terrible environment for refining, Frontier was able to increase profits? I am blown away - just imagine if the tables turn in their favor and crude falls. Talk about best of breed. I am buying more...

• Frontier Oil Corp. said Wednesday its profit rose in the third-quarter because it was able to charge more for finished product like gasoline and refine that product from less expensive crude oil.
• The refiner's net income rose 11 percent to $137.2 million, or $1.28 per share, from $123.6 million, or $1.10 per share, a year earlier. Revenue edged up slightly to $1.39 billion from $1.38 billion. Analysts polled by Thomson Financial expected earnings of $1.20 per share, on average.
• Refining margins in Frontier's Rocky Mountain and mid-continent regions were among the highest in the United States for the most recent quarter, Frontier said in a statement.
• Also, the company's Cheyenne, Wyo., refinery, took advantage of a relative discount for using lower-quality crude oil compared to using higher-quality crude oil, thus lowering feedstock costs.
• Frontier's results are a marked difference from lower third-quarter profits posted by much of the rest of the refining industry in recent weeks due to soft gasoline demand and high crude oil prices, which weakened refining margins.

I am truly shocked by this result. I stock is up 2%, but I think much like Mosiac (MOS) post earnings when the stock did not rally much off a great result, Frontier Oil is not getting it's due. It took a few days but Mosaic exploded. I wrote on October 9th after Mosaic reported (stock was around $54, now low $70s):

I see the guidance increase is not superlative, so perhaps this is why the muted response to a heck of a report. That said I think that muted response is a mistake; the North America phosphates business really surprised me.

If Frontier can make that sort of result in this environment, just imagine if crude finally drops. And if it doesn't, well you have a company that can print money even in a harsh environment. Wonderful. I see a very similar opportunity to the 'wrong' response to Mosaic post earnings (mild rally). I bought 225 shares ($10.9K) to the 450 I owned in Fronter Oil, taking this up to a 2.7% position ($32.7K). Stock is in the $48s. I don't like Tesoro's business as much but now that it's in play I added 75 shares ($4400) to the 450 shares I bought Monday in the $56 range to push this up to a 2.6% position. ($31K) Stock is now in the $59s.

Disclosure: Long Frontier Oil, Mosaic, and Tesoro in fund; no personal positions