Doesnt selling LNCO to buy BRY make sense right now?
Picking up on an earlier spread, doesnt it make sense to sell LNCO and buy BRY right now? Sell at 43 today and buy BRY at 48.10. LNCO price drops to $42.27 in the morning. RLP suggests LNCO price might fall by 5% with new shares issued = .95 x 42.27 = 40.16 x 1.25 for BRY shares = $50.20. About a 4.4% return for 1 month and you get LNCO shares back before the next divvy in July. B/E is LNCO dropping to 38.50 or 8.9% post dividend , which seems quite high absent some non-LNCO market event. Comments?
Ex-squeeze me? Isnt the point just the opposite? Absent collapse of the merger, what anyone thinks of BRY's value is a non-issue. If I am buying for the merger, the value is BRY is immaterial. The point is I hope to be getting paid in over $52 worth of LNCO shares when I only paid $48 for those shares. By selling LNCO before going ex-divvy, I get the divvy value and use it with my Linn share proceeds to buy BRY at what I hope is an 8%+ discount for a 2 month hold that gets me back into LNCO shares before the next divvy.
I see there is an article out today about the spread being too high, but arbitragers not getting to play the spread based on inability to short LNCO and unwillingness to capture LNCO tax implications. Article seems to agree with my general thesis that it appears to be a very good move now with a built in cushion, meaning LNCO would have to fall by about $4 per share or 9% before my acquiring BRY results in a possible loss, which the author implies is doubtful because LNCO's 7% divvy will keep its PPS propped up.
Obviously, I could still lose, but i hope to pick up an extra $10,000 or so on the temporary flip while ending up with the same LNCO shares at the end of the day We will see...
lexpress56: Yes, it could be a better play, but is conditioned on the relative price of BRY and LNCO at the time of the acquisition - that's the variable regarding the spread and the ultimate 'wild-card' should you opt to make that gamble... Whether you opt to buy BRY now, and forfeit this quarters allocation, or hold is entirely a personal choice... (I'll hold LNCO and collect the current allocation after the X-date on May 6th and see what happens)... Regardless, it is a win-win situation overall - BRY is a 'cash cow', and should LNCO price drop short-term, it should regain p/s valuation relatively quick...(My only regret was not buying substantially more of LNCO at its inception)... GLTA