A below-market offer by a Canadian investment firm to buy up to 3 million shares of FirstEnergy Corp. stock appears to be of no concern to Wall Street analysts who follow the company. They say the investor company is merely trying to make a quick buck.
The offer to buy the shares would amount to ownership of approximately 0.71 percent of the Akron-based utility’s outstanding company stock.
Analysts said the offer by TRC Capital Corp. is also not an indication that FirstEnergy is a potential takeover target.
A message left at a phone number for TRC was not returned.
The offer disclosed Thursday in a solicitation to FirstEnergy shareholders is to buy shares for $30.15 per share.
That was $1.40 below FirstEnergy’s closing stock price on Thursday of $31.55.
On Friday, FirstEnergy shares closed down 7 cents to $31.48.
FirstEnergy responded to the letter to its shareholders by issuing a news release recommending shareholders reject the offer. If shareholders had made a move to sell, FirstEnergy recommended they change their mind and withdraw their sale.
Charles Fishman, an equity analyst with Morningstar in Chicago, said he did not pay much attention to what was called a “mini-tender” offer when he saw it come across his computer screen.
“These companies just lob in a price and they do it because some people bite on it and maybe they didn’t look at the going stock price,” said Fishman, whose company rates FirstEnergy stock as a “buy.”
Fishman has FirstEnergy’s value set at $41 per share, which is the price he believes the company will be worth in a few years.
With whatever shares TRC acquires, it could sell the stock quickly and attempt to make a profit.
In recent years, published reports show TRC has made similar offers to shareholders of such companies as 21st Century Fox, Walt Disney, Duke Energy and Procter & Gamble of Cincinnati.
Fishman said he did not infer from the stock purchase offer by TRC that FirstEnergy could be a takeover target.
“It just seemed to be the type of company trying to make money off people who aren’t paying attention to stock prices. I don’t think they have any special information or knowledge of the company,” he said.
Two other analysts who also cover FirstEnergy, but said they did not want to be interviewed for attribution, said Friday they did not put much weight on the mini-tender offer. One analyst said while the offer could be targeting small investors, there could be some institutional groups with significant shares of FirstEnergy who might consider the offer a fair price to unload some stock.
The U.S. Securities and Exchange Commission warns investors against mini-tender offers. The offers result in an investor owning less than 5 percent of a company’s stock so the investor group does not have to comply with what the SEC says are investor protections in place for larger offers. An investor group that does not cross the 5 percent ownership threshold also does not need to file documents with the SEC or provide withdrawal rights.
“The people behind these offers — also known as ‘bidders’ — frequently use mini-tender offers to catch shareholders off guard. They count on investors jumping to the conclusion that the price offered includes the premium usually present in larger, traditional tender offers. But with mini-tender offers, the price offered may actually be below the market price,” the SEC said in a news release on its website.
“Investors who surrender their shares without fully investigating the offer may be shocked to learn that they cannot change their minds and withdraw. In the meantime, they’ve lost control over their securities and may end up selling at below-market prices,” the SEC said.