Final update 3/19/24: Cummins has released the final results of this exchange offer. See original post below for past details, although the opportunity has passed. The final proration factor was ~6.99%. However, those with “odd lots” of 99 shares or less were not subject to proration, which created an opportunity for smaller individual investors.
Here are my stats:
- Bought 99 shares of CMI @265.86 (2/26) for $26,320.14
- Tendered all 99 shares, exchanged for 1190.95 shares of ATMU.
- Received 1190 ATMU shares and $25.24 cash for the partial shares of ATMU (3/19).
- Sold 1190 shares of ATMU @26.15 and 26.14 for $21,076.68 and $10,037.66, respectively (3/19).
Net profit of $4,819.44. This took a total of 23 calendar days, so that works out to an internal rate of return of 1527.59% 🤑 according to my financial calculator. (At 5% APY, my return over 23 days would be about $80.) The absolute ROI is 4819/26320 = 18.3%. Not bad for less than a month! I hope that it worked out just as well for everyone who chose to participate.
Update 3/15/24: This exchange offer is now expired and the preliminary results have been released. The final exchange ratio was 12.0298, which means 99 CMI shares will be exchanged for 1190.95 ATMU shares. Out of the 5,574,050 shares that will be accepted for tender, 1,006,609 of those shares were from odd lot holders. That’s a relatively high amount, but still less than 20% of the total and odd lot holders won’t be pro-rated. On the other hand, everyone else who held more than 99 shares will be pro-rated down to approximately 6.7% of tendered shares.
ATMU has been seeing a lot of short interest, and may even be experiencing a bit of a “short squeeze” right now. This may be partially due to people hedging their bets on the stock. ATMU stock is up about 17% since this exchange was announced in mid-February. You might have made more money simply buying ATMU at the announcement rather than participating in the exchange! (You could have even made more money letting people borrow those shares to short.) As I said, this is as much an educational opportunity as a profit opportunity. I’ll have to keep an eye out for the ATMU shares showing up in my account. The two choices are to (1) sell all shares immediately, or (2) hold the ATMU shares for a couple months until the short interests and other market pressures subside. I’ll probably do the former, but here is another opinion on the latter.
I have no idea what the value of ATMU will be when the shares arrive (rough guess 0-2 weeks) and when I sell, so I won’t bother to post speculative numbers. I will provide a final update after selling.
Original post from 2/25/24:
Back in May 2023, Cummins (CMI) spun off a company called Atmus Filtration Technologies (ATMU) which makes products for commercial vehicles and equipment (think big rigs, agricultural machines, and yellow construction equipment). Cummins still owns about 80% of ATMU and are trying to complete the split-off via an exchange offer to CMI shareholders: tender $100 of CMI and receive $107.53 of ATMU in return.
Similar to the Johnson & Johnson odd lot tender from last year, this ~7.5% premium is meant to incentivize the deal and make sure it happens successfully, and as a result it may be “oversubscribed” with tenders having to be pro-rated. However, there is an “odd lot” provision in the deal, where if you only have 99 shares of less of CMI and tender them all, you won’t be subject to pro-ration. This is a corner of the market where small individual investors have an advantage that the bigger money can’t access.
Please know upfront that I’m not an expert on this stuff, and there are risks involved. The following two articles and the official informational site explain the various details and risks in much better detail.
- Cummins: Odd Lot “Arbitrage” Opportunity (Eagle Point Capital)
- Atmus Filtration Spin-off Deep Dive (Stock Spin-off Investing)
- Cummins Launches Exchange Offer for Separation of Atmus Filtration Technologies Inc. (Press Release)
- Official Cummins/Atmus Exchange Informational Site (Okapi Partners)
From the official site above that tracks the share prices for the exact tender ratio (upper limit not in effect at time of writing):
If the Exchange Offer is oversubscribed and Cummins cannot accept all tenders of Cummins Common Stock at the exchange ratio, then all shares of Cummins Common Stock that are validly tendered will generally be accepted for exchange on a pro rata basis in proportion to the number of shares validly tendered, which is referred to as “proration.” Stockholders who beneficially own “odd-lots” (less than 100 shares) of Cummins Common Stock and who validly tender all of their shares will not be subject to proration. Direct or beneficial holders of 100 or more shares of Cummins Common Stock will be subject to proration.
For each $100 of Cummins Common Stock accepted in the Exchange Offer, you will receive approximately $107.53 of Atmus Common Stock, subject to an upper limit of 13.3965 shares of Atmus Common Stock per share of Cummins Common Stock. The Exchange Offer does not provide for a lower limit or minimum exchange ratio. See “The Exchange Offer — Terms of the Exchange Offer” in the Prospectus. IF THE UPPER LIMIT IS IN EFFECT, YOU MAY RECEIVE LESS THAN $107.53 OF ATMUS COMMON STOCK FOR EACH $100 OF CUMMINS COMMON STOCK THAT YOU TENDER, AND YOU COULD RECEIVE MUCH LESS.
To quickly summarize the potential deal:
- Buy 99 shares* of CMI at your broker, for an approximate cost of $26,133 (as of market close 2/23, will change daily).
- Tender ALL your shares through your broker. You can’t own 100+ shares and only tender 99. The deadline is supposed to be March 13, 2024, but some brokers may require your tender instructions earlier than that. (At Fidelity, it is 03/12/2024 7:00 PM ET.) Your broker may have an online form to fill out (look for “Corporation Actions”, or you’ll have to call them).
- If all goes smoothly (not guaranteed!), then you’ll get ~$28,100 of ATMU approximately 7 business days after the deadline. You can then sell the shares for cash if you are not interested in actually holding the stock as an investment. At the 7.5% premium, the potential profit is ~$1,960. You may get less depending on the relative share prices of CMI and ATMU.
- * You can buy less than 99 shares for less financial commitment (and less upside), but you have to tender them all.
This is the type of deal that I find both interesting and educational, on top of having a positive expected value. Warren Buffett today wouldn’t bother with this deal, but Warren Buffett age 14 might. This is a calculated gamble, rather than a fixed return. There is risk involved, including either the deal being canceled somehow (you end up with 99 shares of CMI at whatever market price) or the limit ratio being reached and you get less than a 7.5% premium of ATMU shares. This is also an area where a broker with good customer service is useful (I use Fidelity). You should perform your own due diligence.
Disclosure: I ended up deciding to participate and bought 99 shares of CMI after publication of this post (which was on a Sunday night). During mid-day trading on Monday, I bought 99 shares at $265.xx a share. This is not a recommendation to buy.
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What’s the best way to use options to hedge against AMTU price dropping before you’ve had a chance to sell?
You could buy April puts. That would cut into the profit for sure but guarantee a smaller profit.
It definitely looks tempting. Agree with Tony that the biggest risk is ATMU drops after the tender. ATMUS is a much smaller company than KVUE in the J&J odd lot tender deal ($2B vs $37B)… I guess it’s still worth the risk if you can keep a close eye on the tender date.
Could you do this across multiple brokerages (ie 99 shares at each)? Or would that put you into the 100+ bracket?
I don’t know if it would work, they may or may not be able to track somehow, but it’s not allowed under the tender offer terms.
I know that people have done the J&J / KVUE one using different brokers and got away with it. It sounds not quite right to me, so I wouldn’t do it.
I’m still thinking this one through, but one of the things that I’m trying to get straight in my head around is the potential risks based on a dollar value exchange and not a share exchange. e.g. You’re exchanging $100 dollar value of CMI for $107.5 dollar value of ATMUS on the exchange date and not 1 share of CMI for 1.0753 shares of ATMUS on the exchange date.
So, there’s risk if the ATMUS you received falls before you can sell it AFTER the exchange, it can reduce your return.
But isn’t there also theoretically downside risk if CMI falls after you buy it BEFORE the exchange date? For hypothetical purposes, I buy 99 shares of CMI today at the pretend price of $100 for 1 share (and ATMUS is trading at $1.07). That’s a total investment of $9900 (99 x $100). If CMI were to drop to $90 by the exchange date, the value of CMI shares would only be $8910 (99 x $90). That would be give me approximately 89.1 shares of ATMUS on exchange. Assuming ATMUS is still trading at $107.83 on exchange date, the value of those shares would be $9570 (89.1*107.53). I’ve actually lost money on the exchange.
If ATMUS is trading higher than 107.83, I made more. If it’s trading lower than 107.83, I lost more money.
Although the CMI exchange would be better for an investor who hasn’t bought in when the price drops to $90, I can’t buy any more shares to take advantage of the lower CMI price because I’m stuck at 99 because I’m trying to take advantage of the odd lot rule.
Now how likely is it that CMI has a 10% drop or whatever it takes to push you past the breakeven point on the exchange if real numbers are used? I don’t know.
I’ve arbitraged some stock mergers in the past, but they were always share for share or shares for cash.
I just couldn’t totally wrap my head around this one since it was based on dollar value. Or maybe I’m missing something, but I thought I’d share my thinking.
I know it’s very popular to haul out the cliche that you can’t time the market, but the goofy thing about hacks like this is, price swings really do wipe out all the gains. And this share price is swinging because of bloggers like here, inflating the value to exploit a split-off exchange as easy cash. Everyone’s been talking about the post-tender share price, but the biggest loss is not having bought the market-accurate share price before all the blogs and such caught on/found their story.
These happen once or twice a year. Without hedging in the options market there is all sort of risk
1) You buy CME now and it goes down…..if more than 7.5 percent you are in the red and that’s just the first part
2) The ratio moves so the upper limit is in effect. This usually happens so the 7.5 percent turns into lets say 5 or 4 or 3 percent or something.
3)Next forget about the odd lot people but huge funds play this deal by predicting the proration. There will be many shares to sell usually of the spin off stock in this case Atmus. So Atmus could go down hard with forced selling. Meanwhile the shares hadn’t come into our accounts yet.
SO it is possible for all these to happen and possibly all will..resulting in nasty losses
I am not trying to dissuade anyone from doing this….but without option hedges this is a gamble and experienced players game it. Do it if you like but be prepared for possible losses.
What is the latest date one can buy CMI shares on?
How do you make the tender? Is that similar to how one gets a proxy email from the broker?
I have to call in for Fidelity for this one. In previous ones, I was able to tender online.
Has anyone tried to do this through Merrill Edge? They seem to be reluctant to even say if I can do the tender through them.
Can you do this in IRA / Roth accounts?
If the same number of shares submitted by odd lot holders in the jnj / kvue tender were to submit in this and the exchange ratio lands near upper limit, odd lots would have to be prorated. Not sure that will actually happen, but so many people are doing these now. Lack of proration is retail’s edge here. If that’s gone, no reason to play with this.
Had not even considered that , good thought. Compared to JNJ this is a very ‘small’ deal.
Don’t think prorating of odd lot has ever happened. That would also mean that none of the non-odd-lot shares would be accepted.
Never a dull moment
I’ve tracked and done odd lot tenders and exchanges for years and never saw even one where the odd lot holders were even CLOSE to being prorated. Some day that could happen, but we’re a long ways from that happening.
tried this, i bought the 99 shares, called Fidelity and they seem clueless – asked me when I received the offer in my account. I told them a friend told me about it. Any ideas on how exactly to tender with Fidelity?
ignore comment, Fidelity found it
I called up Fidelity and they handled it, although it would have been nicer to just do it online. Usually the keywords to get to the right department are “tender offer” and you can see if you opted in under the “Corporate Actions” section on the Fidelity website.
lol, the boyz are making it hard on ya
Does the stock have to be settled to tender the shares or can I still purchase them this week?
Fidelity said they had to be settled – took a few days
Will you be making a follow-up post on how the entire process went such as the time it took for the new shares to show up and the final result? For example, Vanguard allowed me to set me preferences via the website instead of requiring a call like Fidelity.
Yes, will update after the exchange and final sale. The exchange ratio appears to be set, and the exchange was not announced as delayed nor cancelled, so it seems like a go.
Looks like only about 1 million shares from odd lots were tendered out of the 6 million shares to be exchanged. So all the odd lots will be fully exchanged. Everyone else will be pro-rated pretty severely, as 60+ million shares were tendered in total.
It looks the final ratio is 12.0298 AMTU per 1 share of CMI. AMTU has had a nice run up over the past few days as well.
Yup, posted a preliminary update.
This one was interesting as both CMI and ATMU hit new 52-week highs on THE SAME DAY! The short sellers were likely concerned about that.
So far so good! Really appreciate you for posting this, it’s made us several thousand dollars (at least on paper!) I’m sure I’ll return the favor by using referral links 🙂
Thanks, Jonathan for posting this. It’s worked out really well unhedged. I didn’t even get a good execution on the original 99-share CMI purchase. I will note that most analyses have a buy rating for ATMU. It will be very interesting to see how ATMU performs once the shares are cleared. Buying insurance puts for ATMU at the moment looks expensive to me… but most of the profits are from ATMU’s runup, not the 7.5% original arb. Keep up the good work!
Has anyone received their ATMU yet? I only check maybe 6x/day so I don’t want to miss it . . .
Got and sold my shares at SoFi today. Very happy with this deal!
Mine showed up in Vanguard before the markets opened this morning (March 20th). Looking at the transaction history, it looks like they were exchanged sometime yesterday (March 19th) after the markets closed. I bought CMI early on with Jonathan first posted about this at $264.91 a share and ending up selling ATMU at $26.01 a share. Was hoping to get out earlier since ATMU hasn’t done that great post-exchange, but still walked away with a net gain of $4,720. That works out to about an 18% gain.
Big thanks to Jonathan for bringing this to our attention!
FYI, Fidelity posted shares to account just now. Lots of 1190’s being sold on the tape.
Thanks Tim! Sold from a ski gondola. Haha! Ski trip paid for!
No thank you. I only knew about it because you posted it. Love the Blog!
Shares showed up in my IB account at about 11:30am Pacific. A few hours after Fidelity. I got an execution on the market sell near the current day-low, but still very happy with the ~$3.8k profit.
Jonathon thanks to you, I purchased 99 shares and sold for a $4500 profit!
Thanks so much for posting – bought CMI for $26,984, sold for $31,172 this morning. $4188 gain in ~2 weeks!
Jonathan:
Thanks for sharing good deals like this. I followed your instructions and earned $4,500. I also made money from KENVUE deal you published last year.
Jasper
Congratulations to all who participated! I was following this post but did not participate.
FYI- I’ve done odd lot tender and exchange offers since Home Depot (HD) in 2007 and they almost always (probably 85-90% of the time) work without a hiccup.
Even when they don’t go smoothly, I figure I can buy more shares afterwards at a lower cost to reduce my cost per share. Also I can sell covered call options and collect dividends to receive extra cash.
I’m a super experienced trader and worked in the biz almost 20 years. These odd lot deals are likely my all-time favorite type of transaction! On all of them since 2007 (didn’t really get active with them til about 2013), I’m up close to $200k in total with VERY FEW CLUNKERS!
How do you find out about these? Especially a little ahead of time?
This is the second deal Jonathan posted and unfortunately I missed both. Totally missed the post on the J&J one this summer. Didn’t have cash available for get 99 shares of $CMI this time around. Just wondering if there are websites that track these tender offers.
Just wondering if there are websites that track these tender offers? Trying to figure out how would one find out a about these ahead of time or as soon as they’re announced by the companies?
This is the second deal Jonathan posted and unfortunately I missed both. Totally missed the post on the J&J one this summer. Didn’t have cash available for get 99 shares of $CMI this time around.
Offers like this should be publicly posted on the SEC’s website (www.edgar.gov) using Form TO, but then, you have to manually read the form to see whether it contains an odd-lot tender provision. Not many do these days, I understand. With the inception of commission-free trading, it’s no longer cost inefficient to sell an odd lot.
There are probably other sites (paid and/or free) that monitor these types of tenders, but I don’t know of any offhand. Please post if you find one!
Jonathan, thank you very much for this tip. I only bought 50 shares but as of today, have over a $3,000 profit. Stop loss already in place! God bless.
Thanks Jonathan! where’s your buy me Coffee link? 🙂 I owe you one.
Although I discovered this deal on my own (using Google), I DEFINITELY APPRECIATE your posting this strategy for others too!
ATMI was so strong that I did separate daytrades on it during the course of this deal and made roughly an extra $1,000+ on those trades alone.
So, with the 99 share exchange offer (where I made $5,066.32 (plus the $20+ cash in lieu of a fractional share- still waiting for from Schwab), total profit is already over $6,000.00!
This was the best odd lot deal I’ve done since Lockheed Martin (LMT)/Leidos (LDOS) in 2016. 101 of my friends combined to make over $500,000 on that one. I kept an Excel spreadsheet with the details. It was phenomenal.
And this one did so well that companies like Goldman Sachs and J.P. Morgan will likely be pitching it to other prospective clients in the near future. So stay tuned!
Where and how do you find out about these types of tender offers if you didn’t read about it on this blog