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Split-off exchange offers: the upper limit that caps the discount

Albert Gasull, editor · 27 September 2026

A split-off exchange offer advertises a discount: hand over $100 of the parent’s shares and receive about $107.53 of the subsidiary’s. That discount is a maximum, not a promise. The same prospectus fixes an upper limit: the largest number of subsidiary shares one parent share can bring. Above a certain subsidiary price the limit is slack and the discount arrives whole; below it the limit binds and a fixed number of shares arrives instead, worth less with every further fall. Two closes and one division say which side of that line the offer is on today.

How the mechanism works

  1. A parent that has already floated part of a subsidiary offers its own shareholders subsidiary shares in exchange for parent shares, at a stated discount.
  2. Neither price is the price on the day the shares are tendered. Both are volume-weighted average prices taken over a short averaging period near the end of the offer.
  3. The parent is valued at 100% of its average price, the subsidiary at a discount factor of its average price — 93% here, which is where the $107.53 per $100 comes from.
  4. The ratio the formula asks for is therefore parent price ÷ (discount factor × subsidiary price).
  5. That ratio is then cut back to the upper limit printed on the cover page: ask for more shares than the limit allows and the limit is what arrives.
  6. There is usually no lower limit, so nothing catches the trade if the subsidiary’s price runs the other way. Holders of fewer than 100 shares who tender all of them are not prorated; larger holdings are, if the offer is oversubscribed.

The sentence to look for

Both halves sit in the same paragraph on the cover page:

“For each $100 of Medtronic Ordinary Shares accepted in this Exchange Offer, you will receive approximately $107.53 of MiniMed Common Stock, subject to an upper limit of 4.5939 shares of MiniMed Common Stock per Medtronic Ordinary Share. This Exchange Offer does not provide for a lower limit or minimum exchange ratio. … IF THE UPPER LIMIT IS IN EFFECT, YOU MAY RECEIVE LESS THAN $107.53 OF MINIMED COMMON STOCK FOR EACH $100 OF MEDTRONIC ORDINARY SHARES THAT YOU TENDER, AND YOU COULD RECEIVE MUCH LESS.”

The percentages are stated separately: the offer “will value Medtronic Ordinary Shares at 100% of the Average MDT Price and will value MiniMed Common Stock at 93% of the Average MMED Price.” A discount quoted in money and a limit quoted in shares are different units, and the second overrides the first.

Worked example: Medtronic into MiniMed

Friday 25 September 2026 closes: Medtronic $88.64, MiniMed $19.98.

  1. MiniMed counted at the discount: 93% × $19.98 = $18.58.
  2. Ratio the formula asks for: $88.64 ÷ $18.58 = 4.7704.
  3. Upper limit in the prospectus: 4.5939. The formula asks for more, so the limit is in effect and 4.5939 shares is what a Medtronic share brings.
  4. Value at Friday’s MiniMed price: 4.5939 × $19.98 = $91.79.
  5. Against the $88.64 of Medtronic given up: ($91.79 − $88.64) ÷ $88.64 = +3.55%, not the +7.53% on the cover.

Two further numbers fall out of the same formula. The limit switches off above a MiniMed price of $88.64 ÷ (0.93 × 4.5939) = $20.75; above that the full discount returns. And the swap stops making money at all below $88.64 ÷ 4.5939 = $19.30, which is 3.4% under Friday’s close. Between $19.30 and $20.75 the discount exists but is diluted, and it thins with every fall in the subsidiary.

Editor’s view: the limit is the first line of the prospectus worth reading, and the last one most readers reach.

Where it goes wrong

  • Reading the prospectus illustration as the deal. Medtronic’s own example uses 9 to 11 September prices and produces 4.3599, under the limit, discount intact. MiniMed closed at $22.50 then and $19.98 on Friday, down 11%, while Medtronic fell 3%. Nothing in the offer changed; the ratio moved from 4.36 to 4.77 and crossed the limit on the way.
  • Forgetting there is no floor. The absence of a lower limit sits in the same sentence as the upper one: the downside is the subsidiary’s price, not the offer’s.
  • Missing the averaging period. The final ratio is set from the three trading days ending on the second trading day before expiry — 5, 6 and 7 October — and announced by 9:00 a.m. New York on 8 October, before the offer’s midnight expiry on 9 October. Three days chosen by the calendar decide the result.
  • Assuming odd-lot treatment covers everything. Fewer than 100 shares, all tendered, escape proration. A holding of 100 or more does not.
  • Counting a dividend that has already gone. Medtronic’s $0.72 dividend, record date 25 September, paid 16 October, stays with tendering holders — but the record date has passed, so a buyer today does not get it.

How to check it

  • The cover page prints both figures: the value per $100 and the upper limit expressed in subsidiary shares per parent share.
  • The valuation sentence gives the percentage applied to each side — 100% for the parent, the discount factor for the subsidiary.
  • The division on today’s closes, parent ÷ (factor × subsidiary), sits either above the limit (limit in effect) or below it (full discount).
  • The prospectus gives the averaging dates and the time the final ratio is announced, both before expiry.
  • The document says whether odd lots are excluded from proration, and gives the depositary’s own deadline, earlier than the offer’s.

Sources

Next guide: US buybacks from abroad: the withholding that comes before the tax

Author holds: Medtronic, no (27 September 2026). 99 Shares is information, not advice, and nothing here is a recommendation to buy, sell or tender any security. Terms of use.