​

Type of situation: Tender offer with odd-lot provision, opportunity to make a quick CAD315 / USD231 or 36% in 4 weeks  

Update 09/26/2024

Odd-lot provision cancelled, archiving the idea and taking the loss here

Unfortunately, the main risk in this arbitrage play has materialized and Frontera has cancelled the odd-lot provision as of yesterday after market close. Frontera said that by cancelling the odd-lot priority, it seeks “equal treatment for all shareholders” – they probably had to realize that there were too many retail investors purchasing odd-lots to capitalize on the unfortunately not so risk-free arbitrage.

Likely, the stock will see some pressure today at market open when speculators drop their shares but should stabilize somewhere in the range of CAD$7.50-8.00.

I have to take the L on this one and archive this idea. The very wide spread between the stock price and the tender-offer price should have been a clearer warning sign in hindsight.

Why look at this?

This is a quick little lunch money trade on a tender offer with an odd-lot provision. Frontera Energy is a Canadian petroleum exploration and production company with a market cap of CAD$740m which is listed on the Toronto Stock Exchange under the ticker FEC. Frontera on September 4 announced it would conduct a share buyback by way of tender offer amd purchase up to 3,375,000 shares from its investors for CAD$12.00/share, for an aggregate purchase price not exceeding CAD$40.5m. The tender offer features an odd-lot provision. Frontera is planning to fund this purchase using cash on hand.

Investors that opt to tender their shares can elect to receive their payment in either Canadian or US dollars.

Currently, shares in FEC trade for CAD$8.81/share, giving investors an opportunity to make a quick CAD$315 / US$231 or 36% if participating in the tender when tendering an odd-lot of 99 shares.

The offer commenced on September 11 and is open for acceptance until 5:00 pm ET on October 17, 2024.

Odd-Lot provision

Should investors tender more than the 3,375,000 shares authorized for repurchase by Frontera, shares will be purchased on a pro-rata basis, meaning that your shares may not be fully accepted. However, the company has included an odd-lot provision for shareholders tendering less than 100 shares (=99 shares) that will be prioritized and are guaranteed to be accepted.

Tendering

You have to actively participate in the tender offer. This works as follows: Purchase 99 shares of FEC and then tender them via your brokerage. The latter part is different from brokerage to brokerage but there should either be an option to do so on the page of the stock, in the support area or you can write an email to customer support of your broker to help you tender your shares.

Using multiple accounts

This may or may not work. Generally, these offers are valid once per individual investor. Theoretically, you can try to tender 99 shares from multiple accounts at multiple brokerages. But there is no guarantee that this actually works and you may end up being stuck with FEC shares you don’t want to own. Personally I guess that chances of this working are highest if using multiple accounts at different brokerages.

Risks

With these tender offers, there is always the risk that the company reserves that it may cancel or amend its offer.

Conclusion

This is a little trade for some quick lunch money. Nothing too exciting, but still nothing to sniff at. Free money lying on the street, so to say.