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XBIT's Tender: A Profitable Trade Or Capital Destruction?

Feb. 26, 2020 10:00 AM ETXBiotech Inc. (XBIT)21 Comments
Philip MacKellar profile picture
Philip MacKellar


  • XBiotech Inc. recently completed a tender offer and bought back 14 million shares at a price of $30.00 for a total cost of $420 million.
  • The tender was oversubscribed. As a result, the pro-ration factor in effect was approximately 33.25%, meaning that most subscribers to the offer had their tender orders only partially filled.
  • Owners who purchased between mid-2017 and November 2019 and participated in the repurchase generated significant returns and the tender served them well.
  • More recent investors (and traders) likely got burned unless they avoided proration through a small odd lot position.
  • Since the tender concluded, XBIT has fallen. The high offer vs. market price, plus the large subsequent decline, raises to-be-determined questions regarding the soundness of the capital allocation strategy.


XBiotech Inc. (NASDAQ:XBIT) is a pre-market biopharmaceutical company. They are in the business of trying to develop and commercialize “True Human”™ monoclonal antibodies to treat various diseases including type 2 diabetes, infectious diseases, cardiovascular issues, and others. The organization has been listed since 2015.

Source: XBiotech USA Biopharmaceutical Next Generation Antibody Therapy

I was not aware of XBIT until January when management announced this tender offer; this is because Contra the Heard Investment Letter does not hold pre-revenue entities like XBiotech. Instead, we prefer established companies with long track records and revenues going back many years. (Those readers interested in how we select investments can get a sense of that by reading either of these two Seeking Alpha articles: Searching For A Bargain - Volume II: A Detailed Contrarian Watch List Review and Searching For A Bargain: Where Contrarians Look After A Multi-Year Bull Market.) Nevertheless, it popped onto my radar because I personally sometimes buy into these situations.

The Tender:

This modified Dutch auction was announced January 14 and established a price range between $30.00 and $33.00. Management’s intention was to spend $420 million and close the deal in mid-February. The buyback went off without a hitch; it closed on time and in accordance with its original terms. The final price was at $30.00, at the bottom end of the modified Dutch auction range. This resulted in the repurchase of 14 million shares.

Though buying back 14 million shares represented a huge sum and roughly 32.67% of all common stock outstanding, the tender was still oversubscribed by a significant margin. As a result, the pro-ration factor in effect was approximately 33.25%, meaning that most subscribers to the offer had their tender orders only partially filled, and retained the rest of their shares. This oversubscription was not surprising, however, because XBIT traded at $18.62 on the

This article was written by

Philip MacKellar profile picture
Philip MacKellar is an analyst, portfolio manager, and investor at Contra the Heard Investment Newsletter. He has been with the company since 2011 and has been investing since 2004. The newsletter’s primary focus is on contrarian and value-oriented investment opportunities traded in the United States and Canada. In addition, Philip sometimes engages in M&A, other special situations, and holds bonds, preferred shares, and convertible securities. Contra the Heard is a Toronto based company and was founded in 1995. Philip also blogs about personal finance topics on his own website called mymoneymoves.ca in his free time. You can also follow Philip at the Globe & Mail, on Twitter @Rallekcam, and catch him on YouTube at Contra the Heard.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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