Make a Staggering 360% Annualized Return with CBS Tender Offer

I recently wrote an article that discussed an unusual stock market opportunity for savvy investors.  One of these opportunities is currently available and I highly recommend people consider it. It is a rare opportunity to pick up over $400 profit with relatively low risk. If you are new to odd-lot tenders I suggest reading the original article here.

The odd-lots clause in the tender offer allows guaranteed tender for shareholders of less than 100 shares. In other words, if you own 99 or less shares you are not subject to proration which is typically the largest risk in an M&A tender offer.

You can read the tender offer document here.

What about profit?  99 shares*$64*7% = $443

The profit above is a rough estimate and depends on the volume-weighted average price (VWAP) which is calculated as a simple average between July 7th and July 9th. In other words, the $64 share price I used in the profit calculation above is subject to change.  If the price of CBS shares increases the profit will be a bit higher and vice versa.

Annualized gain: I will admit to sensationalizing the title just a bit. The lockup period is very short as the offer expires on July 9th and we should see CBSO shares in our accounts shortly after. If we were to be able to recycle our money into the same opportunity every week we would get an annualized return of ~360% (52 weeks*7%) excluding compounding. However, in reality these opportunities are not very common and certainly not a weekly occurrence.

What about risk? If there is an insufficient number of shares tendered the offer could fall through.  This seems unlikely, barring any unusual price movement in either of the stocks, as the 7% premium should tempt enough shareholders into tendering.

An upper limit to the exchange ratio is set at 2.19x which could tentatively be breached depending on share price movements. The best way to mitigate this risk is to not purchase CBS shares until end of day on the 9th, which would be the last opportunity to buy before the midnight cut-off.

The final risk is that when the CBSO shares are received there could be a sell-off as people, like us, try and lock-in the gain. It is possible to give up a decent amount of the profit on exit.

You could pure arbitrage this play by shorting CBSO while simultaneously going long CBS and tendering the shares. You would have to determine the proper exchange ratio which should be roughly 1.9 times so you will need to be short ~188 shares of CBSO for 99 shares long CBS.  Unfortunately, the shorting fee appears to be too expensive to make it viable.

Disclosure: long CBS and I intend to be short CBSO via options prior to the offer close date.

One thought on “Make a Staggering 360% Annualized Return with CBS Tender Offer”

  1. Just to close this one out. The offer went through as expected; however, I did not end up putting in a hedge as the short fees were egregious. It worked out in my favor and the return was closer to 11% in a very short period of time. Effectively awesome.

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