Bid for Discover is Mini in Price and Volume

Discover Financial Services (NYSE: DFS) on Monday recommended its investors stay away from an offer for their shares from investor TRC Capital Corp.

Toronto-based TRC offered on August 7 to purchase up to 4 million shares of Discover’s common stock, or less than 1 percent of its shares, for $22 per share. TRC has been conducting such “mini-tender” offers for the stock of major U.S. and Canadian firms since 1999.

Some Discover investors may be temped for any purchase offer. The card issuer and network held its initial public offering in June at $28 a share but the stock price has since drifted down to $23.59 in midday trading today.

Still, that’s better than TRC’s $22 bid, so why sell to TRC? The answer isn’t clear. The U.S. Securities and Exchange Commission’s guideline on such programs called “Mini-Tender Offers: Tips for Investors” warns investors to compare the market price for their stock and the offer’s price. The SEC notes that the bidders may catch “investors off guard” with the mini-tender deal.

The TRC mini-tenders follow legal guidelines set by the SEC and Canadian regulators and avoid many disclosure requirements by seeking less than 5 percent of the shares of the company that it bids for. It isn’t clear how many investors have sold shares to TRC but it has been running mini-tenders for eight years.

TRC has also targeted Sara Lee Corp., Chevron, Campbell Soup, Schering-Plough, Halliburton and others. Lorne H. Albaum, TRC’s leader, has generally stayed away from the press and it isn’t clear how much the company has made from its mini-tenders.

Discover in its release urged shareholders to check for current market quotes and consult with their financial advisor before tendering their shares. Shareholders that have already tendered their shares may withdraw the shares by providing written notice to TRC, Discover writes. The TRC offer expires Sept. 7.