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JAKK Tender Offer Gives Small Investors a Chance to Make $200

May 29, 2012 | About:
JAKKS Pacific Inc. (JAKK) announced on May 25, 2012, that it has commenced an offer to its shareholders to purchase up to 4 million shares of its common stock at a price of $20 per share. The self-tender offer will expire on June 27, 2012, unless it is extended or withdrawn. The self-tender offer is not conditioned upon obtaining any minimum number of shares of common stock being tendered; however, it is subject to certain terms and conditions set forth in the offer to purchase for the self-tender.

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:

Adib Motiwala
Adib Motiwala is a Portfolio Manager at Motiwala Capital LLC, an investment management firm that manages separate accounts for its clients.

Visit Adib Motiwala's Website


Rating: 3.7/5 (14 votes)

Comments

batbeer2
Batbeer2 premium member - 2 years ago
Great!

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.
cdubey
Cdubey - 2 years ago
Thanks for an interesting idea ... It is amazing that things like this happen !

Adib Motiwala
Adib Motiwala - 2 years ago
If about 40,500 investors tender 99 shares then it would be interesting. Some times , tenders do have a provision to buy an additional 2-3% more shares. It would be certainly interesting if this were to happen.

Any other risks ?
batbeer2
Batbeer2 premium member - 2 years ago
I used to own some JAKK and I think there isn't much business risk. What I do see is some market risk.

The plan will basically fix the shares at 18-20 for the next few weeks with a lot of people trading around the tender. So what happens after ?

I guess we'll see a lot of stock-flippers leaving JAKK for dead after the tender is done. Especially if some of them bought in the hope of tendering and then, for some reason their plan fails (if for no other reason than they forgot to tell their broker). They'll be leaving in disgust.

So, IMHO, we have some market risk post-tender.

FWIW, I have put in my bid for the 99. If my order gets filled and then for whatever reason my shares are not bought in the tender, I count on holding them longer term. In any case, I won't be selling in disgust.

Maybe if my gloomy scenario causes the stock to tank, I load up. The value is there. Even if the trade works out fine, I will be watching it post-tender.

In short, I plan for the worst and hope for the best :o)

regards,
Value_Ideas
Value_Ideas - 1 year ago
Adib,

This was a great special situation for small investors last year. It is hard to believe but you can find a number of similar situations like these if you are willing to comb through SEC filings. I run a website that covers special situations like these closely including odd lot tenders and reverse stock splits at www.oddlotspecialsituations.com

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