After Auction, P.A.M. Stays in Buyback Mode

P.A.M. Transportation Services Inc. of Tontitown isn’t out of the buyback business.

The company announced Jan. 6 that it had completed a monthlong “Dutch auction” in which P.A.M. agreed to buy 675,000 outstanding shares of its stock for $20.50 per share. The outlay of $13,837,500 (plus a $1,783 filing fee) won’t slow the company down, said CFO Allen West.

“We’re not even going to take a break,” West said. “We could do one of these as soon as Jan. 14. We have to wait 10 business days. We still have board-approved buyback capabilities. We’ll be looking at the market, and if the opportunity presents itself we’ll definitely consider buying more back.”

The buyback constitutes 7.8 percent of the company’s stock and will leave just a shade fewer than 8 million outstanding.

West said P.A.M. could have bought more than 675,000 if it had wanted. Under the rules of the auction, shareholders tendered the number of shares and at what price they are willing to sell.

West said the company received 758,864 offers at $20.50 or below. Most of the tenders were open-priced, West said, meaning the shareholder was willing to sell the shares at whatever price the company decided upon.

P.A.M. was legally required to purchase at least 600,000 shares, but SEC rules allowed the additional purchase of 2 percent of outstanding shares, meaning P.A.M. could have bought up to 773,000 shares.

“We had discussed going ahead and taking them all,” West said. “We just decided, if necessary, we could do this again in the future some time. There is really no rush.”

The auction had a price range of $19 to $21. West said there were more tenders at prices higher than $20.50, although he didn’t have an exact number of the unaccepted offers.

The stock was trading at $19.98 when the auction was announced and it closed at $20.26 last Wednesday. More important, in P.A.M.’s point of view, is that the volume of trading for the stock was consistently less than 10,000 with a few days of 20,000 or more.

With the stock lightly traded, the company found it difficult to buy back any large number of shares at one time on the open market, West said. West said P.A.M. felt the stock was undervalued and wanted to shore up the value by taking shares off the market, but the company’s buyback goal was hampered because many holders felt the stock was undervalued so they weren’t in any rush to sell, either.

“We have several larger holders that we felt might try to get some liquidity,” West said. “We are a thinly traded stock, so if a fund wants to trade 100,000 shares they’re kind of stuck.”

West said the tender offers were made to a third party so P.A.M. doesn’t know exactly from whom it bought the shares or which holders made tender offers that weren’t accepted. West said he assumed that the major sellers were the company’s institutional holders that hold a large number of shares in mutual funds or some other portfolio.

P.A.M.’s largest shareholder, the Moroun family, was ineligible to submit tenders because Matthew T. Moroun is the company’s chairman of the board. The Morouns control more than 4.7 million shares of P.A.M. stock and will see their ownership percentage increase from 54.5 percent to 59 percent after the buyback.

West said the Morouns once held more than 70 percent of P.A.M. stock before the company put about 3.5 million shares up for a public offering in 2002. P.A.M. used the proceeds of that sale to pay off debt and has been buying back shares since.

West said P.A.M. has bought back 2.7 million shares since May 2005 and the auction pushes that total to about 3.4 million. The company’s board of directors has already given approval for the repurchase of another 225,000 shares, and West said P.A.M. has plenty of capital to follow through if the opportunity arises.

“The stock was actually increasing before we put it out there that we were doing a tender offer,” West said. “The market saw us as undervalued just based on our results throughout the year. It increasingly made it more difficult for us to buy.”