Learn Stock Market Investing

As I have mentioned earlier, generally there are three ways on how you can make money through stock market investing. These three are through Dividends which was extensively discussed in Part 1, Capital appreciation in part 2 and Stock rights which was discussed in part 3.

I would like to reiterate that the fourth mode, which is the “Tender offer,” is not considered by most pundits as a way of making money in the stock market since this could very well fall within capital appreciation. However since the mechanics involved are quite different then I will discuss and consider the tender offer as one of the ways on how you can make money through stock market investing.

4.) Tender offer

So what is a tender offer? Well it is just a fancy finance term to describe an offer made to existing owners of a company by a prospective buyer of a company.

It is called a “tender offer” not because the buyer is tender or kind, (On the contrary other controlling stock holders even treat a tender offer not so tenderly as they consider this some sort of a takeover bid) but because the prospective buyer offers the stock holders of a target corporation to tender their stock for sale at a specified price and time.

So why do I consider a tender offer as a way of making money in the stock market? It is because usually in a tender offer, the prospective buyer offers a price that includes a premium over and above the market price. It is just logical that the prospective buyer does this in order that owners of the company, which are the stock holders, will be tempted to sell their shares. So basically this is what a tender offer is all about.

A “tender offer” may be the most logical thing that a prospective buyer might do to acquire a major stake in a corporation but in some countries like the Philippines, a “tender offer” is legislated with the purpose of protecting the investing public. This is necessary because a prospective buyer who wants to acquire a majority stake in the company might only make a tender offer to stock holders that hold big chunks of shares of stocks in the target company which in effect is prejudicial to the small investors as they might not like the prospective buyer.

Sec. 19 of the Securities Regulation Code provides that “Any person or group of persons acting in concert who intends to acquire at least fifteen per cent (15%) of any class of any equity security of a listed corporation or of any class of any equity security of a corporation with assets of at least Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more stockholders with at least one hundred (100) shares each or who intends to acquire at least thirty per cent (30%) of such equity over a period of twelve (12) months shall make a tender offer to stockholders” This provision in the securities regulation code is very helpful in protecting the “small investors” since this place them in the same footing with the “big stock holders.” The provision sorts of gives them the right to “cash out” of the company.

In order that you might understand this more completely, let me site a real life example on how you can make money in a tender offer. Petron Corporation is one of the major oil players in the Philippines. The company is listed in the Philippine stock exchange under the symbol “PCOR.”

Sometime in 2008, London-listed Ashmore Group’s unit SEA Refinery Holdings B.V. has agreed to buy a 40 percent stake in Petron from Saudi Aramco unit Aramco Overseas Company for $550 million. To get total control of the company, they need to increase their holdings to more than 50 %. So they made a “tender offer” that they would buy the shares of “small investors” (Those that bought shares in of Petron through the stock exchange) for P6.531 per share from June 16 to July 14, 2008. The story broke out days before the tender offer was made, and at that time Petron shares were trading between P6.10 and P6.30.

So imagine if you had a million shares of Petron at P 6.10 and the Ashmore group bought it at P 6.531 after a week, you would have made a cool P 431,000 in just a week !

Currently the Ashmore group owns about 90 % of Petron. However San Miguel Corporation, wants to buy 40 % of Petron so it announced last April 26, 2010 that it is making a tender offer of P 6.85 per share.

A week before the announcement Petron shares was trading only somewhere at 5.90 to 6.00 per share. So if you have a million shares of Petron, you would be making P 850,000 in less than a month! No wonder why recently, Petron’s share has been soaring and is now trading somewhere from P 6.60 to P 6.80 per share.

So that concludes our series on how you can make money through stock market investing. Hopefully this series has made you more appreciative of the income opportunities that the stock market has to offer. Stay tuned for more in depth post on the right way on how to invest in the stock market. In the next post we will be discussing the three schools of thought on stock market investing.

Hi ! my name is  Zigfred Diaz, Thanks for visiting my blog where you can learn stock market investing the Warren Buffett way and using other value investing methods ! Never miss a post from this blog. Subscribe to my full feeds for free. Click here to subscribe to D’Intelligent Investor by Email

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