- Announcement date: 10 Jul 2020
- Price at time of writing: $1.04
- Lower limit price: $1.48
- Upper limit price: $1.48
- Maximum profit: $439.56
- Expiration date: TBD – subject to AGM
- Westell Press Release: Link
- Filing: Link
Westell Technologies have announced their intention to conduct a 1-for-1000 reverse stock split of their publicly traded (class A) common stock. Holders of fractional shares after the split will have their holdings cashed out at $1.48 per share. A holder of 999 or less shares at the reverse split date can therefore expect to be cashed out at $1.48 (market price at the time of writing is $1.04) per share, provided the transaction goes ahead as indicated in the press release and SEC filing.
The plan is subject to approval at the AGM and expected to complete in late Q3 / early Q4. Insiders holding class B stock have indicated they will vote alongside management, so the transaction is expected to be approved – the controlling shareholders (Penny family) control 53.9% of the voting power of the company’s outstanding stock per their 2019 annual report.
Westell is conducting this transaction to reduce the number of small shareholders on the register prior to delisting from the NASDAQ.
Investors are reminded to conduct their own due diligence and of the usual risks surrounding odd lot arbitrage opportunities, such as changes to proposed corporate actions if they are no longer deemed to be beneficial. In particular, the proposed transaction would apply directly to record holders of the company’s common stock – beneficial owners whose shares are held in “street name” should contact their broker for information on how the transaction will affect shares held for their account.
This was a subscriber suggested special situation, so our thanks to them on behalf of the community. We will cover similar special situations in this section in future.
Here at OddLotArbitrage.com we source our odd lot tender offer announcements directly from the SEC’s EDGAR database. Using Edgar to find specific filings can be like trying to find a specific straw of hay in a haystack, which inspired us to summarize our research for public use here.
Another tool an investor can use to receive up to date notifications on ongoing odd lot tender offers is Google Alerts.
Google Alerts is a versatile tool that sends you an email notification whenever new web content is published with keywords you specify. This can be used to keep track of all kinds of special situation investment opportunity announcements, including odd lot tender offers.
You will need a Google account to configure Google Alerts, so if you don’t already have one set one up.
Walkthrough for Monitoring Odd Lot Tender Offers
- Go to Google Alerts
- Type the term you want to monitor the web for, select “Show Options”
- Set your preferences. These are mostly self-explanatory by looking at the choices in the drop down menus
- Select “Create Alert” to finalize and start receiving notifications
- Repeat for any other key words or phrases related to odd lot tender offers you are interested in
Example Setup
You’ll want to configure alerts for your keywords and related terms:
- Tender offer
- Start tender offer
- Commence tender offer
- Complete tender offer
- “odd lot” tender
This will look something like this once set up:
We’ve had mixed success using this method, which is why we still refer to Edgar. Alerts can still be useful to receive up to date notifications on developments on offers such as terms of completion. Be sure to follow us too to receive announcements and links to filings for new offers.
We are considering expanding coverage to similar arbitrage special situations in countries other than the US, such as Canada and Australia, if there is sufficient demand.
If there is a particular country and situation you are interested in, please let us know at admin@oddlotarbitrage.com so that we can gauge demand.
Dutch auctions, as the name suggests, have their origins in Holland during the 17th century. At the time, the Dutch tulip mania led to a range of financial innovations facilitating trading and speculating on tulips, including rudimentary derivatives and the Dutch auction.
A Dutch auction is traditionally conducted by the auctioneer starting at the highest asking price and lowering it until it reaches a price level at which the bids received cover the offer quantity. This is the price level the auction will clear at for all bidders, lending it the alternative name of a uniform price auction. This is an example of selling via Dutch auction, and is sometimes used for pricing IPOs, albeit without the presence of an auctioneer.
When conducting a tender offer to buy shares via Dutch auction, a firm will declare the intention to repurchase a quantity or fixed dollar value of shares at a price within a given range. Stockholders are invited to respond with the price withing the range at which they are willing to sell their shares. The firm will aggregate these bids to form a supply curve, and the lowest price at which the desired value or number of shares will be tendered at is the price the offer will clear at.
All participants in the offer will receive the same price; those who indicated a willingness to sell their shares at a lower price will still receive the price at which the offer clears. Those who indicated a higher price will be left holding their shares, taking the risk of the share price falling after the offer expires. On the above graph, a tender for 50,000 shares would clear at $850.
Participants should therefore offer at the lowest amount they are willing to part with their shares for; if buying at market price in the hopes of getting a higher price when tendering the shares this could be the market price as any clearing price above this will result in a profit, which participating if the auction clears at a lower price is undesirable as it would incur a loss. A participant is still subject to price risk on the shares should their offer not be accepted and the price subsequently falls, although this risk can be managed by hedging.
Example
Say a company offers to repurchase 50,000 of its shares at a price between $825 and $875 dollars. The offer prices for shareholders come in as follows:
Investor A: offers 30,000 shares at $850
Investor B: offers 99 shares at $860
Investor C: offers 30,000 shares at $865
Investor D: offers 20,000 shares at $870
In this example, enough shares are offered to fill the offer at $865 per share (60,099 in total). Investors A, B and C will have their shares taken off them at $865. As more shares are offered at this price than the target size of the offer, these investors will each be subject to proration as have approximately 83% of their shares bought.
If the offer contains an odd lot priority provision, investor B as the holder of an odd lot will not be prorated, selling all 99 shares at the clearing price of $865, while investors A & C will be subject to slightly higher proration and sell slightly fewer shares than before to keep the total sold at 50,000. This means investor B will likely receive a higher average sale price for their total holding than large investors A & C – the arbitrage opportunity we track here at oddlotarbitrage.com.