Caution with Click Commerce Shares

Includes: CKCM, ITW
by: Travis Johnson

I wrote in some detail last week that I found the Click Commerce (CKCM) takeover by Illinois Tool Works (NYSE:ITW) to be both confusing and irritating, in that it seemed an odd fit and it valued the company at what I think is a significant discount.

But I didn't decide on the spur of the moment what to do with my shares. It was my inclination to sell some of them before the tender offer goes through, since the possibility, however slim, of the deal falling apart would likely depress the shares, and I can likely come up with something better to do with that money. But I wanted to make sure there wasn't any solid likelihood of a better offer from another acquirer.

Well, I still haven't heard anything about another acquisition, and Michael Ferro has officially tendered his shares to ITW (see the SEC 13D), so if there was any doubt we know that the CEO and largest shareholder is going along willingly.

The shares bumped up by a few cents on Tuesday, though still under the tender offer price of $22.75. They actually very briefly spiked over the tender offer in after hours trading to $22.80, which I assume was simply a trading error by someone and not a sign of a nefarious insider leak. The little bit of volatility that was reintroduced to the shares today, likely as a result of some sort of swirling rumour without any basis in fact, does give me a bit of pause (see the chart below). This is really the first time since the shares settled down following the announcement that the shares broke out of their 2-cent range, but just a bit.

So on Wednesday I sold half my share shares that are slightly leveraged and that are held in a low-commission account (I have a little bit of margin in this position), and hold the remainder ... just in case.

Here's my reasoning:

The tender offer is going to be at $22.75, but it will take some time before we reach that point. During that time, we're dealing with the time value of money and the deal risk, the playground of the arbitrageur (which I am not).

The tender offer is scheduled to begin on Monday, September 18, and to be open for a month (20 business days). During that time I could tender my shares and, most likely at some point immediately following the end of the tender period, receive my $22.75 per share payment.

If I elect not to tender my shares and the deal still gets a majority approval (which seems exceedingly likely, since I've heard no objections from the institutional owners and Ferro's 20%+ stake will go a long way toward deciding the matter), the shares would be taken from me in exchange for $22.75 when the deal closes, which is supposed to be "sometime in the fourth quarter." My guess is that it would be pretty quick, given the likely lack of regulatory complaint and the relatively smallness of the deal for Illinois Tool Works.

So the basic option is: something like $22.55 now cash in hand; $22.75 in late October, assuming the tender offer remains uncountered by another bidder and isn't recalled by the acquirer; or $22.75, probably by December, if the deal goes through. Those numbers won't be changing with ITW's stock price, since it's an all cash deal.

And as I intimated earlier I might do, I'm hedging my bets. The return of less than 1% (the .20 cent difference between today's price and the tender offer) over the next five or six weeks isn't sufficient to make it worth it to take the chance that the deal could possibly collapse, or to pay even a small amount of margin interest on my holdings.

But I'm also entertaining the possibility that another bidder could always potentially materialize, however unlikely ... so for the shares that I hold without margin, and which will also be cheaper to transact if I accept the tender offer than if I sell them outright (again, this is a tiny consideration -- less than 1% impact), I'll wait for the tender offer unless I see an opportunity in the interim that requires me to free up that cash immediately.

CKCM 5 day chart:

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