I am not much of an investor, just a container man. Can someone please explain what a short squeeze is? I would like to know what it is I am about to see on this stock. I have heard it mentioned several times but have never had it explained.
Those of you who followed the thrilling MGM tender thread might be interested in the outcome. 63.2m of roughly 80m eligible shares tendered. Kerkorian/Tracinda bought 15m of the tendered shares and returned the rest. The proration factor was thus 15m/63.2m = 23.7%. My example used a 15m/80m ratio but I noted the correct ratio would be more like 15m/50m. The arbitrage I outlined would have worked at either ratio.
Longrangeidiot claimed the tender would not be oversubscribed and there would be no pro-rating. If he ever works up the nerve to post here again be sure to slap him down for me.
Hi, Doggydogworld --
Thanks for the example.
> The trick is the ratio: all 80m shares will not tender.
I think I'd rather take my chances guessing how many jelly beans are in the jar.
Please read your next tender. Among the things you will find are:
1. All shares tendered are considered sold and may not be recalled.
2. If the minimum number of shares are not reached Mr. K retains the right not to buy any shares.
3. If the minimun shares are reached within the specified time, Mr. K has the right to extend and or modify the offer.
The fact is that Mr. K's number crunchers calculate the price just high enough to capture the required number of shares. HE DOESN'T OVERPAY. Most tenders have to be extended to capture the desired shares.
Your idea that he is going to pay such a premium that every single share in the float is going to tender at precisely the first conceivable moment is well......
Lets just say there ain't no prorata and Dog is still gone.
<<When you tender your shares to Mr. K they are gone (as in sold). He doesn't send any back.>>
You are completely without clue, aren't you?
Kerkorian is only tendering for 15m shares. 80m+ are available to tender. The tender will thus be oversubcribed and pro-rated.
The share lender does not vote. Large lenders (institutions) voluntarily give up the vote in exchange for the income.
If you hold shares in a margin account your broker can lend them out without telling you. You agreed to this when you signed the margin agreement. If he lends your shares out you don't get to vote. You also don't get actual dividends - you get "cash in lieu of dividend". The amount of money is the same, but most sources I've read say cash in lieu does NOT qualify for the 15% dividend rate. Ouch!
I'm sorry, but your argument about dividends doesn't make any sense to me. I thought that if I was short in a stock, I had to pay dividends to whoever bought the stock when I shorted it. That way, if I'm short against the box, I get dividends on my long shares and pay the same amount out on my short shares. So the money balances out.
The voting issue does confuse me. Say (as a totally contrived example) a company has 1,000,000 shares and 10 people each own 100,000 shares. When it is time to vote (assuming all vote) you get 10 times 100,000 = 1,000,000 votes. OK, now say person 11 shorts 100,000 shares and person 12 buys those shares. We now have 11 people that each own 100,000 shares. Time to vote, and 1,100,000 votes are cast on 1,000,000 shares outstanding. Something is wrong here, but I don't understand what it is.
If I understand things correctly, the 100,000 shares that were borrowed for the short sale had to have been long in margin accounts. Are shares that are long in margin accounts allowed to vote?
Anyone able to explain this?
I think you would appear smarter if you would talk ambiguously like Stephen. When you give a concrete example - which is stupid - it kind of makes you look.....
When you tender your shares to Mr. K they are gone (as in sold). He doesn't send any back. That leaves you with a naked short and the only hope that the deal craters.
Mr. K. rarely craters so in the aftermath of your transaction, one can only say "DOG GONE!"
I am only surprised that you didn't check on the tax consequences with Stephen. I think it would happen so fast you would probably have an ordinary loss.
Larry you can not vote the shares you own if you hold the same short position. If that were possible you would also be entitled to any dividends.That would make it possible to buy and sell a stock, collect the dividend with no risk and do it with unlimited capital.
<<would you like to explain more about how shorting against the box would be helpful in tender arbitrage>>
Sure. Look at the MGM tender. Kerkorian/Tracinda is offering $16/share for up to 15m of the 80m shares he does not already own. You:
1. Buy 800 shares at 14.86
2. Short 650 shares at 14.86
3. Tender your 800 shares
Kerkorian buys 150 of your tendered shares at $16 each and returns the other 650 to you. You flatten your position and pocket 150*1.14 = $171.00, minus commissions.
Append zeros to my oversimplified example as befits your account balance :-). The trick is the ratio: all 80m shares will not tender. Instead of a 15/80 ratio you really need to aim for something more like 15/50. Get it wrong and you might lose money. There's also deal risk, Kerkorian could withdraw or modify the offer. You may also lose your borrow at an innopportune time. With all these risks it might be best to leave this to the experts like Unhedged and Longrangeinvestor - LOL!