Medtronic took 18.289133% of each prorated tender: how proration works

Medtronic’s exchange offer for MiniMed shares closed on 9 October, and on Wednesday it filed the final count. Holders tendered 297,521,390 Medtronic shares. The company took 55,032,401. A holder of fewer than 100 shares who tendered all of them had every share exchanged; a holder of 1,000 had about 183 exchanged and the rest handed back. Same offer, same ratio, two outcomes. This issue works through the arithmetic of that cutback, called proration, on four offers that finished in the last three weeks.

The lesson

How proration decides what part of a tender is bought

A tender offer that seeks a fixed number of shares has a problem when more are offered than it wants. It cannot buy from the first holders in line, because US tender rules require every holder who tendered before expiry to be treated alike. So it buys the same fraction from each one. That fraction is the proration factor. The only common exception is the odd-lot priority: where the document grants it, holders of fewer than 100 shares who tender all of them are bought in full, and the factor is worked out on everyone else.

The factor has a simple formula. Take the shares the buyer accepts, subtract the odd lots it takes whole, and divide by the shares tendered by everyone else. Medtronic’s final amendment gives every number needed.

The factor is the filing’s 18.289133% to three decimals; the last digits differ because each holder’s accepted shares are whole numbers. Two more things are in the count. First, Medtronic “elected to accept an additional 5,975,762 Medtronic Ordinary Shares”, using the right a buyer has to take up to 2% more of the class without extending the offer. Without those shares the factor would have been about 16.28%. Second, the factor printed two days earlier was a preliminary ~18.3%, because some shares had been tendered by a promise to deliver them later, and those count only once they arrive.

Now the price. Issue #4 showed that the advertised $107.53 of MiniMed per $100 of Medtronic was a ceiling, and the final ratio of 4.5939 worked out at $103.68 per $100 at the averaging prices: +3.68%. That is the return on the part that was exchanged. On a tender of 1,000 shares the part was 18.289133%, so the return on the whole tender was about +3.68% × 18.289133% = +0.67%, before anything happened to the 817 shares handed back. The odd-lot holder kept the full +3.68% on every share. The author planned to tender 99 shares as an odd lot and never bought them, because the broker’s cutoff was never posted (issue #6); on the final count, all 99 would have been exchanged.

Four offers finished in three weeks, and they cover the range:

Read the same table for a holder of 99 shares. At Medtronic and Arbutus all 99 were bought, because the documents grant odd-lot priority. At Sturm Ruger about 38 would be bought and 61 returned, because the offer has no odd-lot clause. At Virtus about 80 were bought and 19 returned, because the fund granted no odd-lot priority. The size that escapes proration is the same everywhere it exists, under 100 shares, but whether it exists is in the document and nowhere else.

Sturm Ruger also shows why the preliminary factor is provisional. Beretta sought “up to 2,400,184” shares and received 3,589,647 delivered plus 2,652,256 by notice of guaranteed delivery. The release divides by both: 2,400,184 ÷ 6,241,903 = 38.45%. If some of the promised 2,652,256 never arrive, the divisor shrinks and the final factor rises; if every promised share arrives, it stays. Issue #5 worked this offer on the assumption that every share would be tendered, which gave about 17%; the take-up was lower and the factor more than double.

This goes wrong in three ways. The first is reading the headline premium as the return: the premium applies to the part bought, and the blended figure is the premium times the factor. The second is reading the preliminary factor as final while guaranteed deliveries are outstanding. The third is forgetting the shares handed back: they come back at the market price after expiry, often below the price paid to buy them, and that move can be larger than the whole gain on the part that was bought.

Earlier lessons have their own guides: odd-lot priority (issue #1), the Canadian paid-up-capital test (issue #2), broker cutoffs and record dates (issue #3), the upper limit in a split-off exchange offer (issue #4), US withholding on a self-tender (issue #5) and due bills on a large distribution (issue #6).

This week’s situations

Live offers with terms and a deadline, each worked through with the same arithmetic. This week’s filings produced 19 captures: 9 were tenders by funds with no listed share, 6 were results or amendments of offers already covered here (ACV Auctions three times, Medtronic twice, Sturm Ruger once), 1 was an extension of an offer with no line at the author’s broker, 1 was a market note on an issuer bid that ended in September, and 2 were new offers, both written up under Killed. No new situation is added this week; ACV Auctions drops out, its offer closed on Thursday. Kip McGrath stays, on new terms.

Gross = (offer − price) ÷ price, on the part of the position the offer takes up. Annualised = gross ÷ days to expected cash × 365, for that trade only; not a yearly or portfolio return.

Broker execution

The first due-bill window opens on Tuesday

This is the running record of what a broker actually does, as opposed to what the offer document says. Four gaps between broker cutoff and offer expiry are measured so far: Arbutus four hours early, Oma Savings Bank about two days early (twice) and Delivery Hero more than two days early. Two offers that closed this month never had a broker cutoff posted while they ran: Medtronic and ACV Auctions. Neither was held, so neither cutoff was ever tested.

Days from expiry to cash, measured on the companies’ dates: Arbutus six, Oma Savings Bank twelve. Medtronic and Sturm Ruger have not stated a delivery date in the documents read; both say only that it follows the final count.

The next entry is Apollo Commercial. The record date is Tuesday 20 October, and from that day the 300 shares in the book trade with a due bill attached. What the account shows during the window, the day the $4.10 posts on or after 29 October, and whether anything is withheld from it, go in this record in the issue of 1 November. One house rule applies to every holding named here: the author does not trade a security named in an issue from the time it is written until two trading days after it is sent.

The dates that matter · New York time

Killed, and what to look for next time

An offer that waited for its count

ACV Auctions. Copart’s $10.50 cash offer needed a majority of the shares. At the first expiry 47.78% had been tendered, so the offer was extended; at the second 52.84%, with the antitrust waiting period still running, so it was extended again. At 17:00 New York on Thursday 15 October 116,818,409 shares, about 68.43%, had been tendered, all were accepted and the merger closed the same day, turning the shares not tendered into $10.50 cash. The shares no longer trade. An extension that waits for a condition is a different thing from one that signals trouble; the count at each expiry tells them apart. Author holds: no.

SkyAI. A new fixed-price self-tender at $3.00 a share for up to 48,311,489 shares, about 95% of the company, expiring one minute after 23:59 New York on Thursday 29 October and conditioned on at least half of the shares sought being tendered. The shares closed at $2.65 on Friday: +13.2% on the screen. The document says the company will treat the payment to a holder outside the United States as a dividend and withhold 30% of the gross, unless a reduced or zero rate is established in advance on a Form W-8, for example under a tax treaty. On 99 shares that is $297.00 gross, $89.10 withheld and $207.90 received, against $262.35 paid: a loss of $54.45, −20.8%, before any reduced rate or later refund. The issue #5 lesson again: the non-US paragraph comes before the spread. Author holds: no.

BlackRock Health Sciences Term Trust. A fund tender for up to 5% of its shares at 98% of net asset value, expiring 17:00 New York on Wednesday 18 November. Pro rata with no odd-lot priority, and the document warns that holders outside the United States “may be subject to U.S. federal withholding tax, even if they submit an appropriate IRS Form W-8 in order to claim an exemption from backup withholding.” With 5% sought, most of any tender comes back at the fund’s discount: the lesson above, from the other side. Author holds: no.

Clywedog Therapeutics. A self-tender at $6.6609 a share, extended to 17:00 New York on Monday 19 October, with about 19.76% of the shares tendered. The author’s broker has no contract for the shares, so it cannot be priced or bought there. Author holds: no.

Utah Medical closed at $74.51 on Friday against its $75.00 offer, +0.66%, expiring 17:00 New York on Tuesday 27 October. Nothing changed: 24% withheld from the gross paid to a foreign holder, and odd-lot priority only for holders on 21 September. WildBrain closed at C$1.27, below the C$1.30 floor of its C$1.30–1.45 auction, and the circular with its paid-up-capital figure still could not be read, so it still cannot be priced for a holder outside Canada. Oma Savings Bank’s subsequent offer period pays €17.20, where the shares trade. Author holds: none of these.

Also in the count. Nine tenders were by funds with no listed share, which no broker screen can reach. One capture was a market note about Docebo’s issuer bid, which had already ended: the date that matters is the event’s, not the article’s.

The book

Every position, and every closed one

Open, at Friday’s closes. Apollo Commercial, 300 shares at an average cost of $6.9150, $6.38 on Friday, held for the $4.10 payment on 29 October. Delivery Hero, 50 at €37.035, €38.04 on Friday, not yet accepted. Perfect Corp, 1,200 at an average cost of $1.8088, $1.94 on Friday, held into the meeting tonight New York time. SDCL Efficiency Income Trust (London), 2,150 at an average cost of 35.31p, 34.0p on Friday; a managed wind-down with no offer price, where the general meeting of 15 October appointed both directors put forward, each with about 84% of the votes cast. And 100 contingent value rights from the Atai transaction, on a placeholder line with no market.

Closed since the last issue: none. Closed earlier, and on the record: Lindsell Train Investment Trust, +£22.67; Oma Savings Bank, +€39.00. Realised losses on the record: Air Canada, −C$24.95; Zevia, −US$323.10; Arbutus, −US$4.96.

The outcome record, every closed position with fills and realised P&L: https://99shares.org/scoreboard/

This publication discusses the mechanics, deadlines and public filings of corporate actions such as tender offers, exchange offers and liquidations. The author does not hold a licence as a financial adviser in any jurisdiction and is not an appointed representative of one. Nothing here is a recommendation to buy, sell or hold any security, and nothing is tailored to any reader’s circumstances. We do not answer individual investment questions. We accept no payment, sponsorship or other benefit from any issuer named. Any position in a named issuer is disclosed in the issue. The author does not trade a security named in an issue from the time the issue is written until two trading days after it is sent. Figures are taken from the primary source cited. Readers should not rely on this publication in making an investment decision.

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