Stock Deal: Odd Lot Exchange Offer (3M)

[Recyclersteve]

This posting is about a potentially good way to make some extra money on a single short-term trade in the stock market. I want to tell you the good and the bad first. The good is that I have an excellent track record with these corporate action type transactions and there are people on this site who have played some of the stocks I've talked about and done well. The bad is that there is no way I could guarantee you a profit, so don't come crying if you lose money. That said, the odds of a likely 5-7% profit in about 4-6 weeks time are excellent. If you prorate that out over a year, even a 6% profit in 1 1/2 months equals 48% in a year. So that isn't exactly chump change.

Here is the deal. 3M (trades under the symbol MMM) is offering an exchange offer as they are breaking the company into pieces. Part of the company is becoming Neogen (trades under the symbol NEOG). 3M is saying that if you buy MMM shares and offer to exchange them for NEOG shares they will be selling the NEOG shares at a roughly 7-7 1/2% discount.

Here is the GREAT part of the deal. Anyone with 100 or more shares of MMM (close to $15,000) will almost certainly be prorated, so that means they can try to convert their shares to Neogen shares, but will likely have the vast majority of them (70-90%) returned. Those who buy 99 or fewer shares of MMM and validly tender all their shares are assured ALL THE SHARES WILL BE ACCEPTED and converted to Neogen shares. This is THE ONLY WAY I KNOW OF for the little investor to have an advantage over big money investors. If you have a spouse and kids with brokerage accounts, they too can each buy up to 99 shares of MMM and participate in the deal!

HERE IS WHAT YOU DO (IN A NUTSHELL): You need to have a brokerage account with a stock broker, so please don't ask questions if you don't have one. You are likely cutting things really tight without an open account. That said, buy up to 99 shares of stock (per social security number) of MMM. Commission should be minimal and commissions are zero with many brokers at this point. Then you will want to reach out to your broker about tendering your MMM shares to have them converted to Neogen (NEOG) shares. There may be a fee of perhaps $29-39 per account to do this. The deadline to do the conversion will vary from broker to broker, but will likely be about 2-3 business days before August 31st. Be sure to ask your broker about their deadline day so you know well in advance. One the shares are tendered you will see that about 7-10 days or so after the official August 31st deadline that you have Neogen shares appear in your account. You will have a lot more shares of NEOG than you did of MMM since it is a much cheaper stock. Then you can feel free to sell your new NEOG stock. The commission to sell NEOG will often be zero. So the only fee will likely be the reorg fee for converting your MMM to NEOG.

TO SUMMARIZE:
1. Buy up to 99 shares of MMM per tax ID number.
2. Contact your broker and tell them you want to tender all MMM shares for shares of Neogen (NEOG).
3. NEOG stock arrives in your account around September 7-10.
4. Sell NEOG stock when it arrives.

PRO TIP: You might consider doing this in a retirement account to avoid being taxed for any profits earned this year. You will still be taxed ultimately (when you take money out of the retirement account), but at least it wouldn't be taxable in 2023 for 2022.

I've done dozens of these corporate action transactions over the past 10 years or so and have made money on almost all of them. I've had a few close calls where I came close to losing money or had to settle for perhaps only a 1-3% profit instead of the somewhat common 5-7% profits.

If anyone out there has had experience with my stock deals, please feel free to chime in. I'm confident you will likely be pleased with the results.

Remember my motto: Pay it forward!

[stas3000]

Thank you for posting this. Worth looking into further I think.

[Recyclersteve]

If you have any questions, feel free to ask.

[stas3000]

If you have any questions, feel free to ask.

[natsb88]

One of the very first things I did when I opened an IRA account a few years ago was one of these odd lot exchanges that Steve posted. I'm in for this one too, but I'm planning to hold most of my discounted NEOG long term. I have 27 years to go before I can draw from my IRA (without penalty)

[Recyclersteve]

One of the very first things I did when I opened an IRA account a few years ago was one of these odd lot exchanges that Steve posted. I'm in for this one too, but I'm planning to hold most of my discounted NEOG long term. I have 27 years to go before I can draw from my IRA (without penalty)

You can still sell the NEOG in your retirement account without withdrawing money from the account. There should be no taxability whatsoever for doing that.

[natsb88]

One of the very first things I did when I opened an IRA account a few years ago was one of these odd lot exchanges that Steve posted. I'm in for this one too, but I'm planning to hold most of my discounted NEOG long term. I have 27 years to go before I can draw from my IRA (without penalty)

You can still sell the NEOG in your retirement account without withdrawing money from the account. There should be no taxability whatsoever for doing that.

Right, but I'm looking for long term holds anyway. Neogen is in the business of food and animal testing. My day job involves producing equipment for industrial-scale food processing and packaging, so that's a space I find interesting, and one where I am witnessing a lot of growth first hand. Morningstar analysis puts a fair value of $26 on NEOG, which is currently trading under $21 (less than half of its 12-month high). So I think it's worth holding onto some longer term.

[Chaboo]

...just called and tendered my handful of MMM.

Thank you!!

[Recyclersteve]

The final exchange amount was announced. For every 1 share of MMM you will be getting 6.7713 shares of NEOG. If it isn’t profitable to me right away, I will consider the following:

1) Holding onto NEOG and waiting for a better price.
2) Buying more shares of NEOG if that helps bring my average cost down.
3) Selling covered call options against my NEOG stock to bring in some extra cash.

This is a very fluid situation. I truly have no idea where I am leaning right now.

[Chaboo]

Got mine this afternoon and think I’ll try covered calls. ….something that was on my plate to try anyway.

[natsb88]

Got my NEOG. At the moment it's worth 15% less than what I paid for the MMM stock a few weeks ago. The market really moved against this one. But I planned on holding the NEOG anyway.

[Recyclersteve]

Let me give a bit of an update and some commentary on a potential repair strategy.

I just got a dividend of $1.49 per share for the original shares of MMM that I bought. The dividend was paid by Schwab on 9/12/22. You had to buy MMM before the ex-dividend date to qualify to receive the dividend. Nonetheless, it helps a bit for those looking to narrow their losses.

I have also doubled down on additional shares of Neogen stock and am planning on selling covered call options to further reduce my cost.

Let's say Neogen keeps going down. Let's speculate that I sell covered calls for 50 cents each. I could (on a later date) potentially buy back the calls I previously sold for 50 cents each and pay perhaps 10 cents per share to buy them back. The difference of 40 cents would be my profit and would further reduce my cost on the Neogen stock.

Also, once I buy back covered calls I've sold I am free to turn around and sell another round of covered calls. This further reduces my cost on my Neogen stock. I'd generally wait for the stock to pop a bit before selling covered calls. That way you get more for them.

Covered calls (a type of options trading) are a powerful repair strategy for when you have a loss on a stock. Step one: Get your brokerage account approved for this type of options strategy. Step two: If you don't understand them well, go to a place like YouTube or your broker and learn about them.

[Recyclersteve]

I’m gonna add even more context to show that this isn’t as bad as it might first appear to be.

I first bought 99 MMM shares at $148.44 each, likely a higher price per share than anyone else paid. I say that because I bought it before posting here and the stock went down pretty steadily afterwards.

I ended up getting 670+ shares of NEOG in exchange. My cost for the NEOG shares was $21.93/share.

A $147.51 dividend was paid on 9/12- this reduced my NEOG cost to $21.71/share.

I bought 730 NEOG yesterday at $16.13/share. This brought my NEOG position to 1,400 shares at an average cost of $18.80/share.

I sold 14 covered calls today (1 contract covers 100 shares) for 89 cents per share. Cost on 1,400 NEOG shares is now down to $17.98/share.

So my NEOG shares, which originally cost $21.93/share, now have a cost down to $17.98/share. This was because of 3 things: 1) receiving a small dividend, 2) buying more NEOG when it was down sharply, and 3) selling covered call options on my NEOG shares. Not bad!

I need to add that the options I sold allow an option buyer to take my NEOG stock from me for $20 a share anytime between now and January, 2023. I’d GLADLY sell NEOG for $20 and consider this a successful comeback trade.

A key point is this. Don’t allow any one stock to dominate your portfolio. If NEOG went bankrupt and the position became worthless, I wouldn’t like it- but I’d still be okay and totally debt free. No, I’m not rich, but I do have money in savings just in case.

[Recyclersteve]

Time for an update on this tender offer which did very poorly and tested my patience.

I originally bought 3M (MMM) and exchanged the shares for Neogen (NEOG). When NEOG went down sharply, I bought more shares. Still, it continued to fall quickly. Even after buying more shares at a lower price to reduce my average cost, I hit a point where I was down 43.2% when it bottomed. This was in spite of not just doubling down, but collecting a 3M dividend and a nice covered call (options) premium as well.

The company was still profitable, had been trading since the 1980’s, and could double and be nowhere near the 52-week high. So I held on. For a little over 5 months.

The patience paid off on January 19th when I sold and netted a profit of 3.9%. The stock had to go from $10.49 a share to $19.09 where I sold and took the modest profit. So the stock had to go up a whopping 82% just to get that modest profit. I kept reminding myself that this was never a big percentage of my net worth- thankfully. What a huge relief it was to finally take that profit on the 19th! Whew!

[thecrazyone]

Thank you very much for sharing that info, RS!

I did not partake on that, but I did buy some CALM a week or so ago. Today is the Ex date, so I will get the div, but then the cost dropped as of today, so I need to decide whether or not I will hang onto it (I was going to unload it today )

[Recyclersteve]

Thank you very much for sharing that info, RS!

I did not partake on that, but I did buy some CALM a week or so ago. Today is the Ex date, so I will get the div, but then the cost dropped as of today, so I need to decide whether or not I will hang onto it (I was going to unload it today )

Dividends are taken out of the stock price, so trying to scalp a stock for a single dividend can be a challenging thing to do.