Understanding Mini-Tender Offers  

According to the Securities and Exchange Commission, “Mini-tender” offers involve tender offers where, upon completion, the individual making the offer will end up owning less than five percent of a company’s stock. If you’re facing these offers, it’s essential to know that the individuals behind them, often referred to as “bidders,” use mini-tender offers as a way to catch shareholders by surprise. 

In most cases, bidders won’t explicitly label their offer as a “mini-tender offer.” Instead, they rely on investors assuming that the offered price includes the typical premium seen in larger, more conventional tender offers. However, it’s crucial to be aware that the price presented in mini-tender offers might actually be below the current market price. 

These bidders intentionally restrict their offers to five percent or less ownership to avoid adhering to many of the safeguards put in place for larger tender offers. This means that investors who accept mini-tender offers might not receive the same level of detailed documentation that is mandatory for traditional tender offers. Additionally, bidders utilizing mini-tender offers are not obligated to file documents with the SEC, nor are they required to offer withdrawal rights to shareholders who decide to tender their shares. 

Investors who choose to surrender their shares without thoroughly investigating the offer might be in for a surprise—they may not have the option to change their minds and withdraw. This means that they could end up losing control over their securities and potentially selling them at prices below the market value. It’s vital to exercise caution and conduct thorough research before considering any mini-tender offer, as the consequences can be significant. 

Illiquid Investments 

Illiquid investments are assets that lack easily accessible markets for buying or selling. These investments are characterized by their limited marketability, meaning they cannot be swiftly converted into cash without incurring significant discounts or delays. Illiquid investments are typically less liquid than their more easily tradable counterparts, such as publicly traded stocks and bonds. 

Common examples of illiquid investments include: 

• Non-Traded REITs: While real estate investment trusts (REITs) are generally known for providing liquidity, non-traded REITs are an exception. These REITs do not trade on public exchanges, making it challenging to sell shares before their maturity or a liquidity event. 
• Reg D Private Placements: Investing in companies through private placements, such as Reg D offerings, can be illiquid. Investors may need to hold their investments for a certain period before they can sell them in the secondary market. 
• Non-traded BDCs: Like REITs, non-traded Business Development Companies do not trade on an exchange, making them more complex and riskier than investments that trade on a public exchange. 

Exploring Mini-Tender Offers for Illiquid Investments  

In the context of illiquid investments, mini-tender offers involve a bidder who aims to buy a limited number of shares from existing shareholders. As we said before, these offers often propose a price lower than the current market value. The reasons for making mini-tender offers can range from capitalizing on investor uncertainty to pursuing a cost-effective method of obtaining shares. 

In one such example, the board of Pacific Oak Strategic Opportunity REIT Inc., a publicly registered non-traded REIT, sent a letter to its shareholders recommending that they reject an unsolicited mini-tender offer from West 4 Capital LP. 

Pacific Oak REIT’s board noted concerns that its estimated net asset value per share is $10.50 as of Dec. 2, 2022. West 4 Capital LP’s offer price is only $5.51 per share. The letter from Pacific Oak’s president said, “We believe that the bidder’s offer is meant to take advantage of the illiquidity of our shares by buying your shares at a price significantly below their fair value in order to make a significant profit.” 

Unfortunately, if investors want to liquidate at the mini-tender offer price that may result in investment losses. The REIT’s redemption program, like many non-traded REITs, is oversubscribed. 

Should I Sell my Shares through a Mini-Tender Offer? 

Deciding whether to sell your shares through a mini-tender offer, even if it means incurring a loss, is a significant financial decision that should be approached thoughtfully. Here are some key considerations to help you make an informed choice: 

1. Urgency of Liquidation: Assess how urgently you need to liquidate your investment. If you require immediate access to funds, a mini-tender offer might provide a quicker avenue to sell your shares compared to waiting for potentially better market conditions.
2. Loss Tolerance: Evaluate your risk tolerance and financial situation. Consider how comfortable you are with accepting a loss versus holding onto your shares in the hopes of better market performance in the future.
3. Comparative Valuation: Compare the mini-tender offer price with the current market value of your shares. If the mini-tender offer price is significantly lower, you might want to weigh whether the convenience of liquidation outweighs the potential loss.
4. Future Prospects: Research and analyze the investment’s future prospects. Assess whether the underlying fundamentals of the investment suggest the possibility of a rebound in value over time. If you believe in the long-term potential of the investment, selling at a loss might not align with your goals.
5. Tax Implications: Consider the tax implications of selling at a loss. Depending on your jurisdiction and tax laws, capital losses may be used to offset capital gains, which could have implications for your overall tax liability.
6. Opportunity Cost: Think about the opportunity cost of selling your shares now. If you’re selling at a loss and the investment has potential for recovery, you could miss out on future gains by selling prematurely.
7. Professional Advice: Consult with a financial advisor before making any decisions. A professional can provide personalized guidance based on your specific financial situation, goals, and the investment’s details.
8. Diversification: Consider how the sale of these shares fits into your overall investment portfolio. Diversification is a key strategy for managing risk, so selling at a loss might be justifiable if it allows you to reallocate funds to more diversified and potentially profitable investments.

In the end, the decision to sell your shares through a mini-tender offer, even at a loss, should align with your financial goals, risk tolerance, and overall investment strategy. It’s essential to weigh the potential benefits of liquidation against the possible drawbacks of selling below the current market value.  

Mini-Tender Offers and Publicly Traded Stocks

Mini-tender offers often come with certain risks, including the potential to receive a price lower than the current market value, potential difficulties in selling the acquired shares, and limited avenues for recourse if complications arise. 

Before making any decisions about a mini-tender offer, it’s paramount that you embark on a journey of thorough research. Dive into understanding the bidder, the offer’s terms, and how it might impact your investment portfolio.  

Due Diligence and Suitability Rules – FINRA Rule 2111 

If your broker has made unsuitable investment recommendations, and you have suffered losses, you may be able to file a claim with FINRA to seek resolution through arbitration.  

FINRA (Financial Industry Regulatory Authority) is a self-regulatory organization that oversees the securities industry in the United States. The suitability rule (FINRA Rule 2111) is a regulation imposed by the FINRA that requires brokers and financial advisors to recommend investments that are suitable for their clients based on their financial situation, investment objectives, risk tolerance, and other relevant factors. 

Broker dealers are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor. Brokerage firms that fail to do so may be held responsible for any losses in a FINRA arbitration claim. 

Experienced securities attorneys can help you through the FINRA arbitration process. The intricacies of FINRA arbitration can be challenging to navigate, and a skilled attorney with expertise in securities law can significantly enhance your prospects of a successful outcome.  

This information is all publicly available and provided to you by The White Law Group. 

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington. We represent investors across the country in claims against their brokerage firms. For more information on the firm and its representation of investors, visit https://whitesecuritieslaw.com. 

For a free consultation with a securities attorney, please call the firm at 1-888-637-5510.