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Sun Microsystems faces minitender offer

TRC Capital's lowball offer may not be low enough, since Sun's stock dropped.

Sun Microsystems announced Thursday that TRC Capital has made a hostile bid to acquire less than a 1 percent stake in the company with a minitender offer of $4 a share.

Minitenders are typically designed to allow the buyer to purchase a company's shares at below market prices to sell them for a profit, proxy solicitors say. But in the case of Sun Microsystems, TRC may be in the rare position of buying them at a loss--Sun stock was trading around $3.77 on Thursday.

When TRC made its offer on June 24, the investment firm was offering to buy Sun's shares at 6.8 percent below the company's closing price. But since then, Sun's stock has fallen and TRC may have to pay a slight premium to acquire the shares.

Under terms of the offer, TRC could reject the deal if Sun's shares remain below its $4 offer when the deadline rolls around, said Lorne Albaum, TRC chief executive. But he said he plans, at least for now, to move forward with the offering, even though it would be cheaper for him to buy the shares on the open market.

Albaum did not explain why he'd be willing to buy the shares at a loss, but he noted he likes the company and considers himself a long-term investor. Sun's stock may rise before the July 23 deadline to tender shares, which is also Albaum's deadline to change his mind.

When investors tender shares, they do not have to pay a commission, since that cost is borne by TRC. Some investors may be interested in avoiding that expense, especially those who own "odd lots"--less than 100 shares.

"If a retail investor has 10 shares, they may think it's not worthwhile to pay a commission to sell them," said one proxy solicitor.

That doesn't mean the offer is a great deal for the small investor.

"Minitenders are usually sucker bets," another proxy solicitor said. "They're designed to pick off shares from retail investors, who don't keep track of their companies' stock price." Such investors often end up surrendering their shares for less than what they could get on the open market, said the solicitor, who has been involved in hostile bids. "But in this case, it may turn out to be one of those rare situations where it's actually worthwhile for investors to participate, since the minitender is paying more than Sun's current price."

Sun, however, says it doesn't see the value.

"Sun does not recommend or endorse this offer," the company said in a statement. "Sun is but one of the many companies that TRC has targeted for a minitender. These offers seek less than 5 percent of a company's stock, thereby avoiding many disclosure and procedural requirements of the Securities and Exchange Commission."

TRC is seeking to acquire up to 25 million shares, less than 1 percent of Sun's 3.2 billion outstanding shares.

Over the past five years, TRC has launched a number of minitender offers, from Nova Chemicals in 2000 to Nortel Networks last year. And in some of those cases, Albaum said, he still acquired the stock even when the share price dropped below his minitender offer.

"There are some situations where I am a long-term investor," Albaum said. He added that he has no plan to increase his prospective Sun stake beyond 1 percent.