Thursday, November 19, 2015

Stock Manipulation The TRC Capital Way: The Kinder Morgan Mini-Tender (KMI)

I think a little pretrial discovery on these guys would be interesting.
Are they entering any equity, quasi-equity or derivative positions prior to the announcement of their mini-tenders? Perhaps getting their synthetic short on?

Or maybe we just screw discovery and go straight to criminal subpoenas.

As long time readers know, we don't much care for the complexity of Kinder Morgan's capital structure, this kind of financial engineering is very susceptible to being presented in ways that don't reflect reality and to even more nefarious skullduggery but I've gotta say, I like 'nipulators even less.

First up, MarketWatch Nov. 16, 2015:
Last Thursday, Canada-based firm TRC Capital made an unsolicited offer to purchase up to 4 million shares of Class P common stock in Kinder Morgan Inc. (NYSE: KMI) at a price of $23.30 per share. The offer was 4.5% below the closing price of the stock on the day it was made.

On Monday, Kinder Morgan issued a press release encouraging its shareholders to reject TRC Capital's offer:

Kinder Morgan's shares closed at $23.35 on Friday and dropped as low as $22.57, a new 52-week low, on the day and traded down as much as $23.31 Monday morning, before inching back up around $23.45.

TRC Capital has recently launched similar mini-tender offers for PayPal, Yahoo and AT&T shares, among others, and in every case, the company's management has recommended that shareholders reject the offer. No surprise there because accepting the price sets a new floor for the stock. Even the offer can drive the stock lower, as happened with Kinder Morgan.
Kinder Morgan directed shareholders to a 2001 letter from the U.S. Securities and Exchange Commission that explains the mini-tender offer.

The largest energy infrastructure company in the United States has watched its share price decline for months now as investors apparently no longer believe that the company can continue paying its rich distributions in light of falling prices (and demand) for oil, refined products and natural gas. Kinder Morgan issued $1.6 billion in convertible preferred stock late last month as it tries to balance its budget without borrowing or issuing more common stock....MORE
Here's the 2001 SEC Letter to Lewco:
Division of Market Regulation: Letter to the Securities Industry Association re: Broker-Dealer Mini-Tender Offer Dissemination and Disclosures

Most of the commentary* on mini-tenders seems to focus on investors being caught asleep at the switch but I think the more interesting question is "Is TRC profiting regardless of whether any stock is tendered?" Is the below-market mini-tender a technique to knock a stock down to the benefit of, and profit for, a person or persons unknown?

*For an example of the thrust of most commentary this 2014 piece at Alphaville on TRC.

Here's a bit on TRC's Mr. Albaum, apparently a couple of the companies he's associated with give the legitimate boiler room/money laundering communities a bad name.

Just sayin'...

Here's KMI's press release: "Kinder Morgan Recommends Shareholders Reject “Mini-Tender” Offer by TRC Capital Corporation"

Here's the SEC's webpage on mini-tenders

Finally, someone is very pissed at and set up a .biz that is hilarious