How will the tender offer price and resulting discount/premium impact JEQ's net asset value and market price post‑announcement?
Impact on NAV
When a closed‑end fund redeems shares, the cash paid comes out of the fund’s asset pool, so the net asset value (NAV) falls by the tender‑price per share multiplied by the number of redeemed shares.
- The fund is tendering up to 7,072,985 shares – about 50 % of the outstanding supply.
- Assuming the tender price is set at a premium to the pre‑announcement NAV (e.g., 2 % above the $31.00 NAV), the cash outflow will be roughly 7 M × $31.62 ≈ $222 million.
- Removing that cash reduces the post‑redemption NAV to roughly $31.00 − $31.62 × 0.5 ≈ $15.40 per remaining share (ignoring other portfolio activity). Thus, the NAV per share will be lower, but the reduction is roughly proportional to the cash paid and the share count eliminated.
Impact on market price
The market tends to price closed‑end funds at the discount/premium to NAV that reflects supply/demand, fund quality, and liquidity. A tender offer at a premium does a few things:
Immediate price uplift – In the hours before the redemption window closes, the market price normally trades up toward the tender price because investors can sell into the tender at that level. If the tender is quoted at e.g., $32.00 while the prior closing price was $29.00 (≈ 6 % discount), the price will compress to $31.5‑$32, erasing most of the discount.
Post‑redemption re‑pricing – Once the tender ends and the cash is removed, the share supply is halved and the NAV is lower. Experience shows the discount/premium ratio re‑establishes itself. If JEQ historically trades at a 5 % discount, the new market price will likely settle at ≈ $15.40 × 0.95 ≈ $14.60. Hence, the price will drop from the tender‑price level, but it will still be higher than a scenario where the fund had no tender (where the discount would be applied to the pre‑redemption NAV).
Trading implications
- Short‑term: Go long or buy on the dip as the market price moves toward the tender price. The price premium relative to NAV creates a buying opportunity with a built‑in cushion—if you can acquire shares at $30–$31 while the tender is $32, you capture an immediate ~3 % upside.
- Medium‑term (after redemption): Anticipate a re‑adjustment to the historical discount. If the post‑redemption price settles near $14.60, the up‑side from the tender‑price premium is largely baked in. Consider harvesting the gain by selling a portion of the position once the price stabilizes, or hold for dividend yield if the fund’s yield remains attractive at the lower price.
- Risk watch: Ensure the tender price is truly above the fair NAV (i.e., not merely a nominal premium). A thin‑trading environment can cause price overshoot; a larger-than‑expected discount after redemption may signal lingering liquidity stress, prompting a more cautious stance.