Need Advice - Kerr McGee

[Sheryl]

I'm a relatively new investor in stocks. Most of my $ are in no-load mutual funds, but recently I started a small "play" fund to invest in stocks. Last fall I bought 50 shares of KMG at $58.15. They have just announced a "buy-back" which will be for anywhere between $85 and $92.

Should I try to get in on this? I have no idea how, and don't know if it's even an option for a small time investor like me.... The stock is held in a Fidelity brokerage account.

Any advice? I know there are a bunch of smart guys hanging around here somewhere! :

 

[BUM]

Hi Sheryl,

KMG is just under eighty bucks your 50 shares should net around 1000 bucks pretax. You are subject to commissions on the sale of course. I think your question is hold or sell. Not how to sell.

If its play money, go play! IMO sell. As they say "there is no such thing as a bad profit". Who knows what it will be tomorrow? Or even today for that matter!

BUM

 

[wildcat]

Nice catch!! You got in before Carl Icahn so you must be just as good Well you have Icahn on your side (he is a recent buyer) and he is partially responsible for the boost. He is famous for shaking things up in companies and maximizing the value of assets. I don't think I would buy more just b/c of the buy-back. Kerr is getting quite a bit of cash with the sale of some assets and buying back stock was the best was thing they could do with the cash. I would hold and let Icahn do his thing.

 

[Sheryl]

Hi Guys - thanks for the feedback. Yeah, I'm the next Icahn for sure. Wish I had 7% of the company, instead of 50 shares.

BUM, my question actually was "how to sell" because the stock is at about $78 today but they are going to pay a minimum of $85 in the targeted buy back "Dutch Auction". You have to "tender your shares" at whatever price you think they are worth, then KMG will determine what they are going to pay.

I just don't know if this is only for the "big boys" or can someone with a measly 50 shares get in on the deal? So before I sell on the open market for $80 I want to find out more about this whole buy back thing. Even if I'm not eligible, it seems I should wait as long as possible because the market price is going to approach the minimum buy-back price I would assume...

I don't worry too much about the commission - Fidelity is only $10.99 per trade now, I think. Was $14.99 when I started but they lowered it. Makes it more fun to play!

 

[Peter]

Sheryl, have you called Fidelity and asked them? I've found their customer service people to be very helpful and quite knowledgeable.

Peter

 

[BUM]

Now I understand Sheryl. Ask the broker. Sounds like you're in a "can't lose" position.


BUM

 

[cute fuzzy bunny]

Is this one of the buybacks intended to collect shares from very minority shareholders?

I remember getting a lot of offers against 'spinoff' shares I had gotten from owning some company that wanted to 'unlock shareholder value' by spinning off a division and making life miserable for investors who would subsequently have to calculate the cost basis.

The price per share generally looked pretty good, but the deal had to be brokered through some transaction that charged a very hefty fee. When factored together, I'd be better to hold the small # of shares or sell them myself through a discount brokerage.

These usually target people holding less than a block (100 shares) of stock.

I think they're intention is to unload people they have to send annual reports to, proxy votes and so forth.

 

[lazyday]

Here's another board with discussion on the KMG tender offer: http://finance.groups.yahoo.com/group/closedendfunds2/message/380

And, here's a discussion board specifically for special situations like this: http://www.vinvesting.com/modules.php?name=Forums&file=viewforum&f=1
Nothing there on KNG I think, but one could always post.

I don't put a lot of effort into things like this, but have a little experience... Sheryl, if you haven't called your broker yet, you could call and ask for the Reorg department, or tell them you have a question about a reorg. Tell them thet one of your holdings KMG, is having a tender offer, and you want to know the procedure for, and fee for, tendering your shares.

I think a typical fee a discount broker might charge is about $25. $50 wouldn't surprise me. As th says, it is different than a normal trade to sell something.

If it were me, I'd tender all my 50 shares at $85, or maybe buy 49 more and then tender all shares at $85. But I'm something of a risk taker.

When reading the details of the tender offer, you would likely find that they can back out of it if they choose to. So, you probably don't want to buy 49 more shares unless you're willing to take the chance your shares won't be bought back from you.

If you tender your shares, and they are bought back, you could choose to buy back into KMG. The company will be smaller then (since it bought shares at higher than today's market price) so you might need to do some math to decide what a good price is. However, if you tender your 50 shares, get $85 for them, and rebuy afterwards, you might be a little ahead, even after fees.

If someone bought 99 shares at the current price of about 79.50, and the tender went as expected, they would make about $500 after fees (a little over 6%) in about a month, if my math and facts are right.

 

[lazyday]

don't have time right now to verify, but people are saying the deal has been changed, so odd lot holders don't have priority.

if true, this makes tendering much less worthwhile for small shareholders, especially after expenses. so, instead of the smallest shareholders having the advantage, the big ones will.