The unofficial tally is in and the turnout was somewhat disappointing. No, we are not talking about any primary or the upcoming election, but rather about Genie Energy’s (GNE) recent exchange offer to swap common B shares for newly formed preferred ownership on a 1:1 basis. In the end, only ~1.6 million shares of Class B common stock were tendered, representing less than 20% of the total shares made available. In fact, the final number wasn’t even half of the initial minimum requirement to complete the offer, but as we predicted that clause was waived. The final official numbers are expected to be announced on October 15th and once verified, the new shares will be issued. For additional background reading on the subject and our in depth take, check out our earlier posts here and here.
The results aren’t so surprising given the fact that a) the controlling insider (Howard Jonas) was not participating, b) the yield isn’t as attractive compared to other preferred offerings and c) most of the upside in this small company – the shale assets – will be retained by the common. It is worth noting that Mr. Jonas’ controlling stake was solidified even further though and his exposure to the shale assets has increased.
It will be interesting to see what happens with the preferred shares. I think Hypezero is correct – the weak interest will likely mean that the shares will be very thinly traded, but on the flip side, there is a higher likelihood of receiving timely payments (and not in arrears) as the dollar amount is much smaller than it could have been. While there shouldn’t be any expectations of forced selling, the shares are worth monitoring to see if there is ever a drop making the current yield even more attractive. It is worth noting that the market for GNE common, which also isn’t heavily traded, could also become tighter as a result of this transaction.
Disclosure: Author owns share of GNE common.
- Tepid Interest In Genie Exchange Offer…So Far (stockspinoffs.com)
- Drilling Down Into Genie Energy’s Exchange Offer (stockspinoffs.com)