Final update 3/19/24: Cummins has released the final results of this exchange offer. See original post below for past details, although the opportunity has passed. The final proration factor was ~6.99%. However, those with “odd lots” of 99 shares or less were not subject to proration, which created an opportunity for smaller individual investors.

Here are my stats:

• Bought 99 shares of CMI @265.86 (2/26) for $26,320.14
• Tendered all 99 shares, exchanged for 1190.95 shares of ATMU.
• Received 1190 ATMU shares and $25.24 cash for the partial shares of ATMU (3/19).
• Sold 1190 shares of ATMU @26.15 and 26.14 for $21,076.68 and $10,037.66, respectively (3/19).

Net profit of $4,819.44. This took a total of 23 calendar days, so that works out to an internal rate of return of 1527.59% 🤑 according to my financial calculator. (At 5% APY, my return over 23 days would be about $80.) The absolute ROI is 4819/26320 = 18.3%. Not bad for less than a month! I hope that it worked out just as well for everyone who chose to participate.

Update 3/15/24: This exchange offer is now expired and the preliminary results have been released. The final exchange ratio was 12.0298, which means 99 CMI shares will be exchanged for 1190.95 ATMU shares. Out of the 5,574,050 shares that will be accepted for tender, 1,006,609 of those shares were from odd lot holders. That’s a relatively high amount, but still less than 20% of the total and odd lot holders won’t be pro-rated. On the other hand, everyone else who held more than 99 shares will be pro-rated down to approximately 6.7% of tendered shares.

ATMU has been seeing a lot of short interest, and may even be experiencing a bit of a “short squeeze” right now. This may be partially due to people hedging their bets on the stock. ATMU stock is up about 17% since this exchange was announced in mid-February. You might have made more money simply buying ATMU at the announcement rather than participating in the exchange! (You could have even made more money letting people borrow those shares to short.) As I said, this is as much an educational opportunity as a profit opportunity. I’ll have to keep an eye out for the ATMU shares showing up in my account. The two choices are to (1) sell all shares immediately, or (2) hold the ATMU shares for a couple months until the short interests and other market pressures subside. I’ll probably do the former, but here is another opinion on the latter.

I have no idea what the value of ATMU will be when the shares arrive (rough guess 0-2 weeks) and when I sell, so I won’t bother to post speculative numbers. I will provide a final update after selling.

Original post from 2/25/24:

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. (At Fidelity, it is 03/12/2024 7:00 PM ET.) 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 ATMU 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.

Disclosure: I ended up deciding to participate and bought 99 shares of CMI after publication of this post (which was on a Sunday night). During mid-day trading on Monday, I bought 99 shares at $265.xx a share. This is not a recommendation to buy.

Update 3/15/24: M1 just sent me the following e-mail:

We’ve decided to end our M1 Plus membership program. Our premium features will no longer require membership and will instead be available to everyone who builds and manages their wealth on M1.

Starting May 15, a $3 monthly platform fee will apply to clients with less than $10,000 in M1 assets or without an active Personal Loan. Each billing cycle will last 30 days—meeting platform requirements* at least one day during each cycle will ensure this fee is waived for you.

*You will be charged the $3 Monthly Platform Fee if at any point during the 30 days prior to program launch your total aggregate M1 Earn and Invest balances do not equal or exceed $10,000 or you do not have an active M1 Personal Loan.

This is basically free stuff for those with $10,000 invested, and a fee hike for all those with less than $10,000 invested and weren’t already paying for M1 Plus. I happen to be above the $10,000 balance threshold with my IRA contributions, but not an M1 Plus subscriber, and so the new “free” M1 Plus feature that I might take advantage of is the free custodial accounts for kids. I plan to give them the option for regular, dollar-based investments in Berkshire Hathaway shares (diversified, more gradual growth with no taxable dividends).

M1 continues their constant tinkering. They rolled out a rewards credit card linked to company stock ownership, which I don’t think really caught on. They started a checking account, and then shut it down. That’s too bad, because I still really like the core features of M1. They should really just own that they are the “Get Rich Slow” brokerage, as opposed to Robinhood as the “Get Rich Now!… or Lose All Your Money” brokerage. I mean, how many M1 screenshots have you seen that look like this:

If M1 offered excellent customer service (maybe via live chat to save money), they could take funds from Vanguard as the go-to for DIY index fund investors. Vanguard doesn’t offer automatic fractional investments into ETFs. M1 does.

Original review, somewhat edited to be current:

I’ve tried out my share of robo-advisors, which always sounded nice in theory but I eventually became disillusioned as they kept generating lot of unnecessary taxes every time they change their model portfolios to chase the latest and hottest trends. My favorite service for those that want a little extra help is one where I can pick my own custom target portfolio, but the robo still does the hard work: M1 Finance. Here’s a quick rundown of what makes them different:

• Fully customizable. You pick your own target asset allocation “pie”. (You can add ETFs or individual stocks.) You can simply copy one of the many model portfolios out there, or make your own custom pie as you like. You have full control! M1 handles the tedious stuff, like rebalancing or dividing a $100 contribution across 8 different ETFs.
• No commissions. Free stock/ETF trades with a low $100 initial minimum for taxable accounts and a $500 minimum opening amount for retirement accounts. After your initial deposit any amount greater than $10 can be deposited.
• Free with $10,000 balance. Otherwise $3/month. Most robo-advisors charge an annual management fee of 0.25% to 0.50% of assets, or force you to own something bad, like a lot of low-interest cash. (Looking at you, Schwab…)
• Free dynamic rebalancing. All new deposits (and withdrawals) will be invested (or sold) dynamically to bring your portfolio back toward your target asset allocation. M1 will also rebalance your entire portfolio back to the target allocation for you with a few clicks (for free) whenever you choose, on demand. You don’t need to do any math or maintain any spreadsheets.
• Fractional shares (dollar-based). For example, you can just set it to automatically invest $100 a month, and your full amount will be spread across multiple ETFs. Dollar-based transactions were one of the advantages of buying a mutual fund, but fractional shares solve this problem. ETFs are also usually more tax-efficient than mutual funds.
• Real brokerage account with off-the-shelf investments that you can move out. Some robo-advisors hold special, proprietary funds that you have to sell if you ever leave, possibly creating a big tax bill. (Looking at you, Fidelity…) M1 is built on a regular brokerage account, so you can move your Vanguard/iShares/Schwab ETFs and stock shares out to another broker whenever you want.

M1 Finance checks off nearly all the boxes of my brokerage wish list. I suppose the only thing they could add would be to have the high availability of knowledgeable customer service of a huge company like Fidelity or Schwab. Otherwise, I really like their feature set and I have been putting my recent annual IRA contributions into M1.

If you want to invest in newer factor ETFs that focus on Small-Cap, Value, Momentum, or Quality factors like those from DFA and Avantis, or a mix of dividend-oriented ETFs like SCHD/VIG/VYM, their service makes it much easier to set up a portfolio mix of different ETFs.

M1 Plus features are now available to everyone. M1 Plus was their premium subscription tier with several additional perks. Now everyone gets these features, but they are only free with a $10,000 balance and $3/month otherwise.

• High-yield savings (currently 5.00% APY as of 1/10/24). FDIC-insured up to $5 million.
• M1 Owner’s Rewards credit card (2.5%, 5%, or 10% cash back at 70+ brands, no annual fee).
• Lower interest rates on margin borrowing (1.5% rate discount).
• Custodial accounts for kids.
• Extra 3pm PM ET trade window.
• Automated “smart” transfers.

$100 referral bonus. M1 has a $100 referral bonus if you open a new account with $10,000 and maintain it for 30 days. You’ll also get 6 months free of their M1 Plus premium service. Here are the referral bonus details. Here is my M1 referral link (thanks if you use it!) from which you must start opening your new account.

A bonus that amounts to 1% of your initial deposit with only a 30 day hold is technically a 12% annualized yield. This is also better than their standard offer for a $10,000 new deposit (see below), and you can also consider the ACAT transfer and retirement rollover promos below.

Up to $500 New User deposit bonus. Deposit $10,000 or more within two weeks of opening your new M1 Brokerage Account and get a cash bonus of $75 – $500 deposited to that account. See deposit bonus promotion link for full details. Currently set to expire 12/31/2024.

Up to $20,000 ACAT Transfer bonus (EXPIRED as of 3/31/2024). Up to $20,000 if you transfer brokerage assets via ACAT to M1 by 3/31/2024 (now expired). See ACAT transer promotion link for full details.

Up to $5,000 Retirement Rollover bonus (EXPIRED as of 3/31/2024). Up to $5,000 if you roll over your 401(k), 403(b) or another employer-sponsored retirement plan in an M1 Traditional/Roth IRA account by 3/31/2024 (now expired). See this Retirement rollover promotion link for full details.

Bottom line. M1 Finance is a brokerage account that acts like a customizable robo-advisor with automatic rebalancing into a target portfolio. You control the model portfolio, and they do the tedious work. Great for implementation of a low-cost, index or passive ETF portfolio. New pricing structure as of May 15th, 2024: Free for those with $10,000 in assets, otherwise $3 a month.

Disclosure: If you use my referral link, I may be compensated if you click through my link and open a new account.

Also see: Big List of Free Stocks For New Commission-Free Brokerage Apps