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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35367  
Subject: Re: Union Carbide (DOW) 7.75 of '96 Tender Offer Date: 3/3/2011 8:07 PM
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brewer12345,

You wrote, I would call your broker and see how they have it set up for you to submit for the early tender. The reason I suggest putting in for the min price in the range is that you'd have a better chance of getting taken out at whatever the dutch auctioon price turns out to be.

If you have a price in mind that would be acceptable to you let me know what it is and I can tell you what spread that works out to.


Actually I've been too busy to call them today, so it may be too late.

In my limited experience, you usually have to call by like 9-10am of the morning of the cut-off for them to guarantee that they can submit your shares. That gives me tomorrow morning at best.

I was thinking that price might not be that big an issue here. I should be looking at this from a replacement cost standpoint. How much above my replacement cost would incentivize me to tender? Maybe $20/bond over my replacement cost would suffice.

Now what's replacement cost? We're talking something that's minimum investment grade and long or very-long dated. I don't need to know the price for that - I just need to know the yield.

As I understand it, the price Dow is going to pay is equal to the current yield of the reference treasury + [260 to 290] basis points. According to E*Trade, the reference Treasury is yielding 4.631%, so the offer range's yield is [7.231% - 7.531%]. To calculate the price you receive, you take the terms of the tendered bond and work backwards from that yield to get a price. [Add $30/bond for the early tender.]

But I have ask, Can I get a good replacement? Actually, it looks like I might be able to purchase acceptable replacements in the 7.2% range, though I might have to dig as low as 7% - it's hard to tell given what's left on the quote screen after hours.

So if my [new] interpretation is correct, I should be able to do as you suggest and simply tender. The current offer spread is acceptable in that it appears to be in the range of comparable market securities. [This assumes the market spreads don't widen while I'm waiting for my bonds to be redeemed.] I'll also pocket an extra $330 in bonus cash. So regardless of the ultimate price, I suppose I should accept.

- Joel
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