Huge Arb Opp on BBI vs. BBI-B

D

DeltaSpread

Not sure if this popped up on anyone's radar. But there is the merging of two different class shares imminent from Blockbuster and was wondering if my proposal below is a valid one.

BBI bid currently trades at .73
BBI-B ask currently trades at .58

So short BBI,
Buy BBI-B
And you have a locked in profit margin of approximately .15.

Of course there is the normal risk of whenver shorting micro PPS stock that its called from you but would be interested in hearing what anyone thinks of this.
 
Quote from DeltaSpread:
Not sure.........anyone thinks of this.
More...
I don't follow those shares but maybe there is a different conversion ratio other than the "1 to 1" that you seem to expect. :confused:
 
Quote from nazzdack:

I don't follow those shares but maybe there is a different conversion ratio other than the "1 to 1" that you seem to expect. :confused:
More...

All I have heard is an even 1-1 exchange; but I will see if I can find a link. Than after possibly a reverse split for listing requirements.
 
So there is a shareholder vote and it does not specifically say what the ratio will be. This was posted on AP and Yahoo Finance news:

Blockbuster plans to combine Class A and B stock
Blockbuster says it will combine Class A and B stock following NYSE listing compliance issue

Saturday November 21, 2009, 12:14 pm EST
DALLAS (AP) -- Blockbuster Inc. said late Friday it plans to combine its Class A and Class B common shares after receiving notice its stock didn't comply with the New York Stock Exchange's listing standards.

The struggling movie rental retailer said the combination will improve the company's stock liquidity and eliminate confusion about the differences between the two classes of stock.

On Tuesday, the NYSE told Blockbuster that its shares weren't in compliance with the exchange's listing standard that requires the average closing price of a closing stock to be no less than $1 per share over 30 straight trading days.

Blockbuster's Class A stock closed at 74 cents on Friday and its Class B stock ended trading at 34 cents.

The combination is subject to shareholder approval at the company's annual meeting next year. Blockbuster said it may explore other alternative to its capital structure to smooth out any price issues.

Blockbuster faces stiff competition from Netflix Inc. and Coinstar Inc.'s Redbox. Earlier this month, it said its third-quarter loss more than quintupled as more consumers rented movies by mail or through competitors' vending kiosks instead of driving to its stores.
 
I'll wait until someone else explains this.

I want to see if there are at least 1 or 2 other actual traders left at et.
 
Quote from stock777:

I'll wait until someone else explains this.

I want to see if there are at least 1 or 2 other actual traders left at et.
More...

My first thought when I saw the two classes of shares (and price difference) was voting rights, and it does appear that my initial assumption was correct in 2004 (looks like Class A was 1 vote, Class B was 2 votes at that time). There were also some proportion differences at that time (i.e. Class A and Class B were different percentages of the equity of the company).
 
This trade has been around for a while now(1yr +) the spread actually used to be a lot bigger (40-50cents) but when news of the upcoming vote was released the spread contracted. The shares are a 1 to 1 value and the B's actually have more voting rights. I believe they had historically traded at a discount due to less liquidity but they should no longer trade that way. I read an article where someone blamed hedge funds dumping the B shares, but who knows the real reason for the discrepancy.

The trouble is optionsxpress wouldn't give me any shares to short when the gap was around 40 cents.
 
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