July 2018 - SSL Invest

So what is a tender offer?

A tender offer is a public offer, made by a person, business, or group, to acquire a given amount of a particular security. The term is derived from inviting existing stockholders to “tender”, or sell, their shares. In effect, a tender offer is a conditional offer to buy. The question is posed by the individual or entity making the offer, “I am willing to buy your stock at $[x] if you tender (sell) it to me but only if a total of [y] shares are tendered to me by all stockholders.”

Usually, tender offers are proposed so that the acquirer can accumulate enough common stock to either get a significant presence on or completely take over the board of directors. A tender offer occurs as the acquirer owns a large percentage of the outstanding stock. Therein, he or she can force all remaining stockholders to sell out and take the company private or merge into an existing publicly traded business.

A tender offer is mainly used in cases where the management and board of directors does not believe the takeover would be in the best interest of the shareholder. As a result, the management team will oppose as they consider it incompatible with their fiduciary duty. This is also a means by which a hostile takeover can be accomplished by acquirers and/or investors who would like to take control over the objection and fight of incumbent directors and executives.

Tender offers are by far more common in the stock market than a so-called proxy war. A proxy war is another example of an attempt to take control of a business. A company’s annual proxy statement breaks out important information including matters on which stockholders must vote. In a proxy war, the individual, business, or group who wants to take over management tries to convince stockholders to vote for their slate of directors, effectively removing old directors and seizing control of the business.

Proxy takeovers are usually executed by corporate raiders, these corporate raiders will strip the company of its valuable assets and sell these assets piece-by-piece. In other instances, proxy takeovers are executed by well-meaning investors with the best interest of the company in mind. The investors will despite of mismanagement, argue with a slew of documentations citing delinquencies on the part of directors and the negative impact it has on shareholders. This battle is usually resolved via voting and oftentimes shares will be then managed and/or sold to the investor with the most compelling argument with documented proof.

How Tender Offers Work on Your End, as an Investor

Imagine you own 1,000 shares of Company ABC at $50 per share for a market valuation of $50,000. One day, you wake up, and your financial advisor says that Firm XYZ has made a formal tender offer to buy your shares at $65 per share but that the deal will only close if, say, 80 percent of the outstanding stock is tendered to the acquirer by stockholders as part of the transaction. You have a couple of weeks to decide whether or not you will tender your shares.

If you decide to accept your tender offer, you must submit your instructions before the deadline or else you will not be eligible to participate. It’s usually as simple as telling your broker, “Sure, I’ll sell out at $65 per share” and waiting to see what happens. (Of course, if you have physical stock certificates, it’s an entirely different procedure, but those are relatively rare these days.)

If the tender offer is successful and enough shares are tendered, the transaction is completed. You will see the 1,000 shares of Company ABC taken out of your account and a deposit of $65,000 cash placed in. If the tender offer fails because fewer than 80 percent of the shares were tendered to the would-be acquirer, the offer disappears. You are then left with your original 1,000 shares of Company ABC in your brokerage account.

If you reject the tender offer or miss the deadline, you will get nothing. You will have the original 1,000 shares of Company ABC and can sell to other investors in the broader stock market at the first available price. In some cases, persons from the initial tender offer will return for a secondary tender offer. This occurs in the event of not receiving enough shares or wanting to acquire additional ownership in which case you might have another bite at the apple.

Something to always note, if you don’t tender but enough people do, you’re probably going to be forced out of your ownership, as the enterprise may be taken private down the road.

If you want to start investing with SSL but don’t have the time to monitor the market or to conduct the trades yourself then you can choose one of SSL’s managed Financial Planning products. We offer a variety of products for every type of investor and if you are interested in managing online trades yourself and having complete control over your investment portfolio then you can try SSL’s Brokerage account.

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As the business world becomes less rigid about Cannabis (Marijuana/Ganja), organisations and countries alike are investing in the herb that has both medical, and recreation uses.

When states and countries legalise cannabis, new businesses appear out of nowhere. California legalised recreational marijuana at the very beginning of 2018. Within two weeks, two dozen Los Angeles businesses got approval to sell recreational products.

Gives a whole new meaning to the phase, “growing like a weed”. It’s a growing industry, and people are starting to see that there’s money to be made here.

So where does that leave you, the investor?

Well, you have many options. Both directly and indirectly, there are many ways you can turn cannabis into one of the more intriguing investments in your portfolio.

Cannabis Companies

Cannabis stocks are such a new and unusual investment that even compared to your usual investments; there’s no such thing as a “safe bet.” But should you choose to take a chance, medical marijuana presents you with more options. Far more states have legalised for medical use than recreational, and Canada has had medical weed for nearly two decades.

Jamaica is playing catch up with decriminalising marijuana and allowing businesses such Medicanja and Lasco Pharmaceuticals the leeway to explore. What is disheartening is that Jamaica should have been leading the charge with investing in marijuana as much as bauxite and tourism. While no company has been listed on the Jamaica Stock Exchange as yet, we do expect to see a few soon, however, there are companies with direct or indirect exposure to marijuana on the major stock exchanges both in the U.S. and Canada – for example, GW Pharmaceuticals, whose CBD-based epilepsy drug Epidiolex was recently approved by the U.S. Food & Drug Administration (FDA).

Some Canadian companies have shown themselves to be intriguing players in the market. OrganiGram (OGRMF), a licensed producer and grower of medical marijuana, is coming off a strong Q2. As the number of medical cannabis patients in the country grows, so have OrganiGram’s sales, in no small part due to their production of cannabis oil.

Canopy Growth Corporation (TWMJF) is another popular option, a Canadian company that not only produces but researches and studies cannabis. It was recently valued at around $4.35 billion, and Bank of Montreal helps finance it, giving it a competitive advantage.

The first cannabis company to trade on a major U.S. exchange was a Canadian company, Cronos Group Inc. (CRON), which trades on the NASDAQ. What has drawn some people toward it is what has scared others away: volatility. Its overall decline this year hasn’t stopped it from having random days of jumping up 14%. Another Canadian company, Canopy Growth Corp. (CGC), recently began trading on NYSE.

Medicinal cannabis companies will undoubtedly benefit from the new customers, but it would also require more expenses to keep up with demand. That’s important to remember; there’s money to be made, but there’s money that must be spent too. Not every weed stock is going to spit out profits just because it gets legalised.

Some companies, though, have been preparing for the event where recreational marijuana is legal and distribution needs to expand, and they may be worth looking into. Scott’s Miracle-Gro, Co. has acquired multiple companies over the years like General Hydroponics and Sunlight Supply – producers of cannabis growing supplies.

Cannabis ETFs

As marijuana stocks become more of a common occurrence, so do marijuana exchange-traded funds (ETF). ETFs allow for trading many different securities in one fund, bringing a diverse portfolio. They’re tempting, but they are also even newer than cannabis stocks. Moreover, if banks are still wary of individual cannabis stocks, they’re going to be wary of a fund with multiple.

So stay cautious.

Horizons ETFs has a cannabis fund, Horizons Marijuana Life Sciences ETF (HMMJ) is a popular choice that trades previously mentioned companies like Aurora and Canopy Growth. ETFMG Alternative Harvest ETF (MJ) is a fund that focuses exclusively on pot stocks, while the newer Evolve Marijuana ETF (TSX: SEED) is almost entirely Canadian stocks, trading on the Toronto Stock Exchange.

Marijuana stocks are more volatile than your average stock, and the legality of cannabis is always hard to define precisely. It’s a changing world for marijuana, and how you think it will continue to change will determine whether or not you want to invest.

If you liked this article and want to read other great stories, try our Archives. Also if you are new to investing you can try our Investment Basics Blog.

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Month: July 2018

Tender Offers & the Effect on Investors

Investing in Marijuana