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You can read about the tender offer in the SEC filings. Click here to open up the tender offer details.
JAKK currently has about 25 million shares outstanding. So the offer to purchase 4 million shares is for about 16% of the shares outstanding.
Financing: As per the 10Q for the period ended March 31, 2012, JAKK had $254 million in cash on its balance sheet. Even though JAKK is looking for debt financing, this tender is not conditioned on getting the financing, as per Section 9 — Source and Amount of Funds:
We expect to fund the purchase of Shares in the Offer and to pay the fees and expenses in connection with the Offer through a combination of the Debt Financing and available cash. We are in discussions with financial institutions about a potential line of credit, to be extended in the form of a revolving loan, a term loan or a combination of the two. Such a line of credit (the “Debt Financing”) would be entered into among us, our guarantor subsidiaries and a financial institution and would be secured by our assets and the assets of guarantor subsidiaries. Our obligation to accept for payment, purchase and pay for any Shares tendered in the Offer is not conditioned on entry into any such Debt Financing.
So how can small investors benefit from this tender offer?
Simple. The tender offer contains a provision for small investors who own 99 shares or less. Even if all the shares are tendered, investors who own 99 shares or less will not be prorated. See the language below:
What happens if more than 4,000,000 Shares are tendered in the Offer?
We will purchase properly tendered Shares in the following order of priority:
• First, we will purchase from all holders of “odd lots” of less than 100 Shares who properly tender all of their Shares and do not properly withdraw them prior to the Expiration Date
So, how should one proceed?
1) Buy 99 shares (or fewer based on your cash availability) of JAKK. The share price was about $18 at the time of writing this post.
2) Tender all the purchased shares. Call your broker to find out how to do this and any charges associated with it. My broker InteractiveBrokers does not charge me anything for it.
3) Wait for the end of the tender (June 27, 2012), and cash should be deposited into your account a week after that.
What also makes this interesting is Oaktree (OAK) had offered to buy out the entire company at $20 per share (that was declined by the management).
Another point, JAKK's market cap is $450 million (25 million shares times 18). Net cash on the balance sheet is $162 million, or $6.5 per share, or about 33% of the market cap.
Disclosure: Motiwala Capital and its clients own shares of JAKK. Please conduct your own research and/or ask your financial adviser. This post is written to demonstrate an example of a special situation that Motiwala Capital participates in. If you are interested in knowing more, please contact us.
About the author:
Motiwala Capital is a fee-only independent, investment management firm based in Irving, Texas. We invest in public securities primarily listed in the United States. We manage separately managed accounts. You are welcome to read our Letters to clients and also check out our blog.Adib Motiwala is founder and owner of Motiwala Capital LLC. Adib Motiwala received his MBA from the Univerisity of Texas at Dallas. He also has a Masters degree in Computer Science from Texas A&M University.
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Thanks for the idea.
I guess if more than 4 000 000 / 99 investors do this, there's a risk your odd lot doesn't get bought and you end up holding the shares.
I'm comfortable with JAKK though.