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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Dutch Auction Tender Offers

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Written and copyright © 2008-2014 by Thomas N. Bulkowski. All rights reserved.

My book, Encyclopedia of Chart Patterns, Second Edition, has an entire section dedicated to event patterns. Dutch auctions are not covered in the second edition, but 10 others are. I show a picture of the book on the right.

If you click on this link and then buy the book (or anything) at Amazon.com, the referral will help support this site. Thanks. -- Tom Bulkowski

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If a company offers to buy your stock at a price above what you paid, offer it to them 25% below the high tender price range. That offer will be accepted 70% of the time. Buy the stock back after the tender offer expires as price drops a median 10% below the tendered price. Over the next three months, 77% of the time price will rise above the tender price and peak an average of 14% higher. For more information, see Dutch Auction Tender Offers Event Pattern.

Dutch Auction Tender Offer Background

A modified Dutch auction tender offer occurs when the company wants to repurchase its shares. Instead of buying the stock on the open market or acquiring them in a private transaction, the company wants to make a statement. The statement may be that they feel the stock is undervalued, that they wish to return excess cash to shareholders, or that they want to reduce the number of outstanding shares, number of shareholders, or both. They offer to buy a specific number of shares within a price range, usually at a premium to the current price.

For example, the Tribune Company announced on May 30, 2006 that it would buy back 53 million shares at a price between 28 and 32.50, expiring on June 26. The day before the announcement, the stock closed at 27.89. The offer represented a buy back of 17.5% of the outstanding shares of the company (a large buyback). After completion of the auction, the company bought all of the tendered shares, 45,026,835, at a price of 32.50. A little over two weeks after completion of the tender offer, the stock started sliding and it bottomed at 28.50 before rebounding (a V-shaped decline).

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Dutch Auction Tender Offer Analysis

I looked at all the Dutch auctions for stock I could find in the recent past, using Google. In the 50 transactions I uncovered (which I consider to be a small sample, so the statistics may be unreliable), the earliest was in January 2000, and the most recent was in July 2006. I excluded some transactions because they were too recent (not enough follow-on price data), and removed many because they no longer traded (unavailable price data).

Dutch Auction Tender Offer Findings

  • The median buyback was for 17.1% of shares outstanding. Comparing the closing price the day the offer expired with the highest price over the next 3 months, I found that small buybacks (less than the median 17.1% of shares outstanding) had price peaking 13%. Large buybacks (buying back more than the median 17.1% of shares outstanding) saw price rise 9.1%. Substituting the lowest price in the next 3 months for the highest, I found small buybacks had price peaking 7.4% above the expiration day's close. Large buybacks saw price decline 12.8%. In short, companies that repurchase less of their stock perform better in the 3 months after the tender ends.
  • In 65% of the cases, price closed below the tender price at the expiration of the auction.
  • At least once during the three months after completion of the auction, 96% of the stocks closed below the tender price. The median decline was 10%, the average: 11%, with 60% of the stocks dropping at least 10% below the tender price.
  • The largest number of stocks (26%) bottomed in weeks 3 and 4 after auction completion.
  • Just 29% of the auctions had price above the tender offer at the end of one month, 40% showed a higher price at the end of 2 months, and 47% had a higher price at the end of 3 months.
  • Price climbed above the tender price 77% of the time over the 3 months after the auction completed, peaking 13.8% above the tender price.
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Dutch Auction Tender Offer Trading

Step 1. Tender your shares because price is going to drop after the offer expires (96% close lower sometime over the coming 3 months, with a median drop of 10%). This is especially true if the buyback is large (above the median 17.1% of shares outstanding). Tender offers with that criteria tend to make V-shaped moves after the auction completes.

If you decide to tender your shares, at what price should you tender? If you measure the offered price range and take 25% of that range below the high, that would work 70% of the time. In the Tribune Company example, the offered range is 28 to 32.50, for a spread of 4.50. A quarter (25%) of this is 1.13, so a bid placed at 32.50 – 1.13 or 31.37 would succeed 70% of the time.

Other percentages: 10% below the high (meaning 10% of the offering price range, subtracted from the range high) works 54% of the time.
20% below the high works 62% of the time.
45% below the high works 76% of the time.
50% below the high (midway in the offering price range) works 80% of the time.
70% below the high works 88% of the time.

I recommend the 25% target price, which works more than two of every three trades.

Step 2. Buy the stock back when it declines. Many will see price bottom in weeks 3 or 4 after the offer completes, but don't depend on this.

Step 3. In the three months after the auction completes, 38% of the time price makes a new high after it reaches the low. If you buy at the low and sell at the high, you would make an average of 26.8%. But, you might just want to hold onto the stock for additional fun and gains.

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Dutch Auction Tender Offer Patterns

Price trend after tender completes

The figure on the right shows four patterns price takes after the auction completes. In the upper left, price makes a V-shaped move, meaning it declines before recovering. This pattern occurs 74% of the time when the buyback is above the median 17.1% of shares outstanding (a “large buyback”).

The inverted-V shape in the upper right of the figure occurs 68% of the time after small buybacks.

The bottom two patterns rarely occur. I found the one on the bottom left in only 5 of 50 takeovers. Sixty percent of the time, it occurred after a large buyback.

The bottom right occurs in only 4 of 50 auctions and most often (75% of the time) the buyback is small.

In all cases, the 50 auctions are a limited sample, so use your best judgment when trading this event pattern.

-- Thomas Bulkowski

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Copyright © 2008-2014 by Thomas N. Bulkowski. All rights reserved. Auntie em: Hate you. Hate Kansas. Taking the Dog. -- Dorothy.