Argo Group launches big tender offer

My oldest position in my portfolio is Argo Group. I bought my first shares not long after starting this blog in 2012 at 14.69p/share and while there have been a couple of dividends since, and the opportunity to buy more at significantly lower prices, the stock hasn’t exactly been a home run with a current price around 18p/share. Nevertheless, the company remains very cheap, trading at roughly a 50% discount to net current asset value. Argo’s management has recognized this, and reduced the number of outstanding shares with 30% since 2012. But at the same time this has cemented their control over de company as well since they now control 52.7% of the outstanding shares.

Last week Argo announced that it is launching a tender offer to purchase between £2.0 million and £2.5 million worth of shares in a Dutch auction action with a price range between 18p/share and 26p/share. If you don’t have a position yet in the company you can stop reading here, because the offer is only open to shareholders who held their shares on the record date of 6 March. But since I already own the stock I had a decision to make.

Argo Group has a net current asset value of 36.5p per share so I’m absolutely not interested in selling at 18p/share. But at 26p I think it’s a reasonable deal. I get paid a 50% premium to the latest market price, and the company would still be purchasing shares at a 30% discount to NCAV. I’m okay with a deal that’s a win-win for both parties, and at that price the discount is basically split “fairly” between exiting shareholders and remaining shareholders. By tendering at the highest price of the range there is of course a risk that none, or not all my shares, will be accepted in the tender offer, but I think that’s a risk worth taking. If the tender offer is completed at a lower price it would provide a nice boost to NCAV/share anyway, and most likely the stock price will follow. And most importantly, at 26p I’m selling it cheap enough already!

A sort of interesting twist in the tender offer is the fact that the company can pick if they want to buy back £2.0 million worth of shares or £2.5 million worth of shares. At a price of 18p that corresponds to 50% to 60% of the float while at 26p it corresponds to a percentage between 35% and 43%. Given that it’s such a big percentage of the float, I expect that it’s quite likely that the tender offer will go at the maximum of the range. But because the company has the ability to scale back the number of shares they have to buy I do think it’s important to not tender low with the expectation that it will not really matter in the end result.

Disclosure

Long Argo, tendered my whole position at the maximum price

5 thoughts on “Argo Group launches big tender offer

  1. tim

    what’s the stock ticker?

    Why isn’t it good to buy now? Because the NCAV per share increases after the tender anyway?
    So if i buy today i still make money.

    Reply
  2. Stemis

    The other things to consider a
    1. ARGO are owed $8.9m by AREOF against which they have fully provided. However management continue to claim that these are fully recoverable. If they are right it would add 14.5p to NAV.
    2. The tender will use up most of ARGO’s cash. I can’t believe they’d do this if they weren’t very confident about the prospects for the business moving forward.
    3. If the tender does take place at 18p, the Rialas brothers will control 74.8% of the shares. They only need 75% for a delisting.

    Reply
    1. Alpha Vulture Post author

      Yeah, I didn’t mention that, but yes, it wouldn’t surprise me if some good news is around the corner and I might be a sucker for selling at 26p. In the latest annual report you also see how the position of the AREOF fund seems to be improving, NAV is no longer negative.

      Reply

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