Trans World Entertainment's board of directors has authorized the company to hold a "modified Dutch auction" tender offer for up to $25 million in value of its common stock.
In the offer, which sets a minimum of $4.50 and a maximum of $5.10, shareholders indicate how many shares and at what price they are willing to sell them back to the company; then, based on the number of share tenders and the prices specified, the company will determine the lowest price per share within the range that will allow the company to spend up to $25 million buying back stock, which will all be purchased at the same price.
According to Trans World, the price range represents a 13% premium to a 28% premium over the average closing price for the last 120 days, which Billboard calculates to be $4.515 a share. Trans World shares closed at $5.01, up from the prior day's close of $4.94, according to Yahoo Finance. The tender offer was announced after close of trading.
Trans World closed the quarter with $111.3 million in cash and has been getting pressure from some shareholders to announce a dividend. It did so in the fourth quarter of the fiscal year, ending February 2, 2013, when it declared a 47 cents cash dividend, the first time in the company's history.
In deciding to make the tender offer, the company board said it reviewed various alternatives including dividends but decided that the tender offer "would be the most prudent and effective way to return capital to the Company's shareholders and increase long-term shareholder value."
This allows shareholders liquidity at a time when the company's stock price is near a five-year high, the company said, adding that chairman and CEO Bob Higgins, who owns 49.1% of outstanding shares, did not participate in any of the Board's decisions regarding the tender offer.
With 33 million shares outstanding and management and the board of directors holding 16.8 million shares (16.2 million by Bob Higgins), that means there are another 16.2 million shares outstanding. At the minimum price of $4.50, the most shares the company could buy back are 5.55 million, which would mean that Higgins stake would increase to 59%.