Monster Beverage Odd Lot Trade – Working with small amounts of capital in practice
Disclosure: We own 99 shares of this one.
A quick note for our subscribers. There is an odd lot trade that should net you enough to cover a nice dinner (or an annual subscription of Canadian Value Investors) and is the kind of thing Warren Buffett used to do.
On May 8th Monster Beverage launched a $3 billion modified Dutch auction share buyback. This is interesting because of the minimum floor price they are repurchasing at is now below where the Company is trading and the repurchase has an Odd Lot mechanism:
We will purchase shares in the following order of priority:
•First, from all holders of “odd lots” of less than 100 shares who validly tender all of their shares at or below the Purchase Price, and do not validly withdraw them prior to the Expiration Time, except that tenders of less than all of the shares owned by an “odd lot” holder will not qualify for this preference
So long as you tender 99 shares or less and the repurchase closes you will be repurchased first. When they launched the offer, the stock was trading above the floor price and so there was no trade to be had. However, with the recent decline the odd lot mechanism comes into play.
The expected return is shown below. While not totally risk free, we think it is a reasonable risk/return. The issue is that it is not scalable as if you tender more than 99 shares you are at risk of being repurchased on a pro-rata basis. Your profit is capped, but we here at the CVI head office are not yet at the point where we will turn down free dinners. Of course, do your own due diligence and consult an accountant about tax management (ideally for the cost of a coffee to make the trade worthwhile). You also have to make sure your trade settles in time to tender.
As Warren Buffet said:
“So I would say if you're working with a small sum of money and you're interested in the business and willing to do the work, you will find something. There's no question about it. In my mind, you will find some things that promise very large returns compared to what we can deliver with large sums of money.”
Now, this is not a large dollar return, but it is a good case study of what you can do with small amounts of capital. For those looking for inspiration, this five-minute clip of Warren Buffet discussing his investment in the Delta Duck Club, which we think his most fun investment ever, will provide you with some motivation.
Some key highlights of the terms. The full tender offer is here - https://www.sec.gov/Archives/edgar/data/865752/000110465924058430/tm2413707-1_sctoi.htm
Upon the terms and subject to the conditions of the Offer, if shares having an aggregate purchase price of less than the Maximum Offer Amount are validly tendered and not validly withdrawn, we will buy all shares validly tendered and not validly withdrawn. Because of the “odd lot” priority, proration and conditional tender provisions described in this Offer to Purchase, all of the shares tendered at or below the Purchase Price may not be purchased if a number of shares having an aggregate purchase price of more than the Maximum Offer Amount are validly tendered at or below the Purchase Price and not validly withdrawn.
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Upon the terms and subject to the conditions of the Offer, including the satisfaction or waiver of the Financing Condition, if shares having an aggregate purchase price of less than the Maximum Offer Amount are validly tendered and not validly withdrawn, we will buy all shares validly tendered and not validly withdrawn that are tendered at a price that is at or below the Purchase Price. Upon the terms and subject to the conditions of the Offer, including the satisfaction or waiver of the Financing Condition, if the number of shares validly tendered at or below the Purchase Price and not validly withdrawn prior to the Expiration Time would result in an aggregate purchase price of more than the Maximum Offer Amount, we will purchase shares in the following order of priority:
•First, from all holders of “odd lots” of less than 100 shares who validly tender all of their shares at or below the Purchase Price, and do not validly withdraw them prior to the Expiration Time, except that tenders of less than all of the shares owned by an “odd lot” holder will not qualify for this preference;
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Odd Lots. The term “odd lots” means all shares validly tendered prior to the Expiration Time at prices at or below the Purchase Price and not validly withdrawn by any person who owned a total of less than 100 shares in the aggregate, whether such shares are owned beneficially or of record, and so certified in the appropriate place on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery (an “Odd Lot Holder”). To qualify for this preference, an Odd Lot Holder must tender all shares owned by the Odd Lot Holder in accordance with the procedures described in Section 3. “Odd lots” will be accepted for payment before any proration of the purchase of other tendered shares. This preference is not available to partial tenders or to holders of 100 or more shares in the aggregate, whether such shares are owned beneficially or of record, even if these holders have separate accounts or certificates representing less than 100 shares. By tendering in the Offer, an Odd Lot Holder who holds shares in his or her name and tenders such shares directly to the Depositary would not only avoid the payment of brokerage commissions, but also any applicable “odd lot” discounts that might apply to sales of their shares in market transactions. Any Odd Lot Holder wishing to tender all of his or her shares pursuant to the Offer should complete the section entitled “Odd Lots” in the Letter of Transmittal and, if applicable, in the Notice of Guaranteed Delivery.
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Odd Lot Holders must tender all of their shares and also complete the section entitled “Odd Lots” in the Letter of Transmittal and, if applicable, in the Notice of Guaranteed Delivery, if they wish to qualify for the preferential treatment available to Odd Lot Holders as described in Section 1.
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