Description

"Wer den Pfennig nicht ehrt, ist des Talers nicht wert"

Ye who don’t honour the penny are not worthy of the dollar"

- Dutch/German Protestant Proverb

Hopefully a thousand 2022 dollars shouldn’t inflation adjust to one proverb $ soon, but I thought an idea to earn a thousand inflation-adjusted pennies (a 10x smaller inflation adjustment for the attentive eye) is better than an unoriginal - or worse, worthless - idea.

This is an exchange offer idea with odd-lot priority, with an expected value of ~950$ (at current prices extrapolated for remaining VWAP) for an investment of ~15k$ (6.55% return) in a month. It is not scalable unless you manage multiple accounts (a person can only participate once). 

Idea

3M is splitting off its food safety business into Neogen (a peer). See here for all official docs & up to date VWAP.

1. Buy 99 shares of 3M (MMM) - or not: wait* until the final exchange ratio is known (and sufficiently attractive) on 29th of August. Maybe set a calendar reminder on the 26th of August to check-in whether the ratio will “almost surely” be good enough.

2. Tender all shares before 31st of August (I recommend fully automated IBKR)

3. Receive NeoGen shares in this split-off “Reverse Morris Trust” transaction for a potential 7.5% upside (6.5% at this very moment)

*until the ratio is published, there is the downside asymmetry of the exchange upside being capped (upper cap on exchange ratio), but not the downside. After the 29th, this asymmetry is gone. That is a bit of a harsh characterisation as there’s downside protection from the chooser-option(3M, Neogen). Simplifying for the less-volatile 3M stock, one could say one owns a free partly in-the-money call spread on Neogen. That’s enough for a thousand pennies.

In terms of potential selling pressure:

• the 3M shareholders will own only just above 50% of newco (positive), and the pre-split free float of Neogen seems high (positive)

• Short interest in Neogen rose from mid single digits to low double digits now (midly positive). We can expect it to go up further towards the final ratio (if profitable), the FINRA publishing of short interest on August 13 (published on August 24) should be informative.

As regards guaranteed odd lot preferential treatment (non pro-ration), the code states:

Beneficial holders (other than participants in the 3M 401(k) Plans) of less than 100 shares of 3M Common Stock who validly tender all of their shares may elect not to be subject to proration by checking the “Odd Lot” box in the letter of transmittal.  If your odd-lot shares are held by a broker for your account, you can contact the broker and request this preferential treatment. All of your odd lot shares will be accepted for exchange without proration if 3M completes the exchange offer.

As far as I know, this is somewhat unusual, and it seems like manual action is needed (?) after electing CA choice, to contact your broker to let him know you want to enjoy odd lot treatment.

Timeline

• Shareholders approved the deal recently

• VWAP Calculation pending between 4th and 29th of August =>

• Tender expiration deadline 31st of August at 23:59 New York Time

Catalyst

Completion of split-off