However, it is important to note that shareholders will retain their shares until the offer’s completion. Once the repurchase plan expires, Forrester will use the raw number of shares tendered to determine the minimum price at which it can repurchase $130 million of its shares. All shareholders who tendered their shares during the tender period will receive per-share payments at this price.
It is too early to determine the number of shares that will ultimately be repurchased under this program. If Forrester uses its entire $130 million budget to buy shares at an average price of $34, it would retire about 3.8 million shares. This represents about 30 percent of the company’s total float, which could have tremendous implications for its future share price.
How to Play It
Investors who wish to play this deal may be best served by accumulating a position in Forrester on share-price dips and tendering all of their holdings near the top of the Dutch auction range. This strategy is not a guarantee, as an investor doesn’t want to tender too high or they may not have their shares tendered. Given the company’s negative earnings momentum, it is not inconceivable that its shares could suffer a temporary fall after the cessation of the repurchase plan. In this scenario, short-term investors who used leverage to accumulate a position could be caught flat-footed. Opportunistic investors who buy in after a potential post-repurchase fall could be rewarded in the medium term. At the very least, Forrester’s stock is likely to correct to the level of the “final” tender offer if it is below the current price.
Post-Repurchase Financials: EPS, P/E, Market Valuation Relative to Peers
Assuming that Forrester successfully repurchases about 30 percent of its total float, its earnings-per-share figure will jump from 1.12 to 1.46. Depending upon the movements that the stock makes in the days that follow the deal, the P/E ratio could remain largely unchanged or spike by as much as 30 percent. This would place it in a range between 30 and 39. Meanwhile, Forrester’s market capitalization could remain quite low relative to its peers at just 6 percent of Nielsen’s total market cap and about 15 percent of Gartner’s market cap.
In sum, this deal offers an interesting opportunity for enterprising investors; however, Dutch auctions come with few guarantees. Based on Forrester’s ultimate price determination, it is possible for shareholders who subscribe to this offer to receive compensation at the lower end of the auction’s range. As such, investors should conduct their own due diligence before proceeding. For other ideas and investment opportunities, click here.
The article This Dutch Auction Is Creating An Opportunity For Investors originally appeared on Fool.com and is written by Mike Thiessen.
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