The Walt Disney Co. has recommended that its investors reject an offer from TRC Capital Corp. to purchase shares of the Burbank entertainment company’s stock at a price that is below their market value.
Investment firm TRC made the unsolicited mini-tender offer of $61 per share on Oct. 9 -- the day after shares of Disney closed at $64. Shares of Disney were down 0.36% to $66.59 in midday trading on Tuesday.
Disney noted in a statement that the Securities Exchange Commission has issued an “investor alert” on mini-tender offers. The SEC has warned that “some bidders make mini-tender offers at below-market prices, hoping that they will catch investors off guard if the investors do not compare the offer price to the current market price.”
Toronto-based TRC wants to buy 2 million shares of the stock, which represents one-tenth of 1% of Disney’s outstanding shares.
TRC President Lorne H. Albaum said he is “not trying to trick an investor,” adding that the offer could make sense for a Disney stockholder who owns less than 100 shares, because the TRC deal allows an investor to avoid a commission charged by a stock brokerage.
“The net to [investors] would be greater to them if they tendered to me,” he said.
But several popular brokerage firms, such as Charles Schwab and ETrade, have commissions of less than $9 per trade. As of midday Tuesday, TRC’s offer was, on a per-share basis, more than $5 below market. Therefore, using a brokerage to sell just two shares of Disney at the market rate is likely to make more economic sense that accepting TRC’s offer.
When told of the commissions offered by companies including Charles Schwab, Albaum said he did not “know what the minimum commission rates are depending on which brokerage firm you deal with."
Albaum said that no investors have taken his company up on its offer. He said prospective participants could cancel their order at any time until Nov. 7, the date the TRC offer expires.
TRC has made similar offers to investors in other large companies including 21st Century Fox, Kraft Foods, Monsanto, Ford and Intel. Each company has called for investors to reject TRC’s offer.
Because mini-tender offers are for less than 5% of a company’s outstanding shares, they are not subject to SEC oversight.
“Disney notes that the offer is subject to the satisfaction of a substantial number of conditions, including the absence of any decrease in the market price of Disney shares from the price on the date of the offer and the ability of TRC to finance the offer,” the company said.
TRC made its offer for shares of Disney competitor 21st Century Fox last month.