JAKKS Pacific Inc. (JAKK) announced on May 25th 2012 that it has commenced an offer to its shareholders to purchase up to 4,000,000 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 The self-tender offer will expire on June 27, 2012, unless it is extended or withdrawn.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 then cash should be deposited into your account a week after that.
What also makes this interesting is Oaktree had offered to buy out the entire company at $20 per share (that was declined by the management). Another point,
JAKKS Market Cap is $450 million (25million shares * 18). Net Cash on balance sheet $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 advisor. 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.
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The JAKK tender went through successfully at $20 a share.
From the press release
“Based on the final count by the depositary for the self-tender offer, a total of 20,710,940 shares of common stock were validly tendered. The Company has accepted for payment approximately 17.3% of the shares tendered by each tendering stockholder, after giving effect to the purchase of all shares validly tendered by odd lot holders. As such, the Company has accepted for payment an aggregate of 4,000,000 shares at a purchase price of $20.00 per share, for a total purchase price of $80,000,000, excluding fees and expenses related to the self-tender offer. The 4,000,000 shares the Company has accepted for payment in the self-tender offer represent approximately 15.4% of the Company’s shares outstanding as of May 24, 2012.”
Motiwala Capital received payment for the shares this evening.
I was a bit surprised to see 21m of the 26m shares outstanding being tendered. This means almost everyone tendered their shares. Hence, proration was high and only 17% of shares were accepted (other than odd lots). The share price also dropped a lot after the tender expired to $16 from $18.