Cummins & Atmus Filtration Odd Lot Tender Opportunity / Exchange Offer

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. I’d do it as soon as you can. 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 AMTU 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.

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Cummins & Atmus Filtration Odd Lot Tender Opportunity / Exchange Offer from My Money Blog.

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