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Why not CCRT?


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CCRT announced a buy back offer to purchase up to 8.25 million shares

 

http://finance.yahoo.com/news/compucredit-holdings-corporation-announces-tender-210000481.html

 

As per the information, there are 23.7 million shares outstanding apart from 1.7 million shares short.

 

Float seems to be around 6.x million shares.

 

Did not get to see the Offer terms but on the surface looks like a fair chance to get $10 (few weeks down the line) against the trading price of $6.5 today.

 

Does anyone know of any intricacies where your validly tendered stock will not be bought back?

 

I am assuming there is something, otherwise market will not provide a guaranteed 50% return opportunity in few weeks.

 

Anyone?

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Price before Tender Offer announcement: 5.15

Percentage of shares being bought: 34.9%

 

Expected price: 0.349 * 10 + 0.651 * 5.51 = 7.08

Current price: 6.46

Expected return: 9.6%

 

Looks like this could be an opportunity, but it's certainly not a guaranteed 50% return opportunity. And the above math is ignoring certain risks such as the TO being cancelled.

 

 

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Not sure how I follow the logic.  If I buy today and tender I get $10.  There's the chance of the tender falling through, but they have cash on hand and insiders are tendering as well.

 

To me the risk is it's oversubscribed and I get a pro-rata on my tender.  In that case some percentage of my shares will receive $10 and then I'll have to sell the rest on the market for $5 or $6 whatever it trades at.

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With the huge premium in the tender offer you can be pretty sure that almost all shares will be tendered, so you have to account for that when calculating the expected value.

 

Although last tender was a significant premium and it was only 90% filled.  So maybe this time will be different, not sure.

 

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Let us say you buy 100 shares today at $650 and with a (big) assumption that the offer will go thru,

you have a chance of at least 35 shares to be sold for an amount of $350

 

But you have close to zero percent chances of 100% of the shares showing up for buy back.

The lower the number of shares tendered for buyback the lower your entry point will be post buyback.

 

If number of shares tendered is        Your entry point post buyback will be

23.7 mil           650-350/65 = $4.61

11.85 mil           650-500/50 = $3

< 8.25 mil           Your investment appreciates by 53.8 percent

 

I don't know if they have any frivolous conditions under which they can cancel the buyback. Hoping that the 'Letter of offer terms' will provide the answer.

 

 

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CCRT has done a similar tender offer in 2011, and another time before. Look at the chart around May 2011, and you will see that the stock has fallen sharply soon after the tender offer expired. Also, insiders are participating in the offer. The performance of the company is horrible, and I suspect that these offers are just a way for big shareholders to get rid of their shares at a good price before it is too late.

 

Maybe the way to play it is to short the stock just before the tender offer expire.

 

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Yeah, my initial post also contained some flawed logic. Since the company is overpaying for it's shares in the tender offer (it's really just an alternative way to pay a dividend, but without the tax) the only value that is added is coming from the few % of people that do not participate in the tender offer. So if we ignore that for the moment, and you would assume that the market will value the company after the tender offer at the same level as before the tender offer there is no opportunity at all.

 

At $5.17/share the company had a 122.5M market cap with 23.7M shares outstanding. In the tender offer it will use 82.5M in cash, so the remaining value would be 40M. There would be 15.45M shares outstanding remaining, so after the tender offer the share price should be $2.59/share. So unless you think the company is worth significantly more because of a more efficient capital structure after the tender offer there is no opportunity.

 

Based on the above you would simply expect that the price would still be at 5.17 (0.349 * 10 + 0.651 * 2.59 = 5.17)

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Thanks finetrader and Hielko (I now understand atleast understand some of the thinking behind why it is trading at $6.32).

 

Here is my take. I am not looking at it as an investment beyond 12th September.

 

As long as the total shares tendered does not exceed 12.7 mil,

my investment is zero (buy 100 shares at $650. Out of 12.7 mil 8.25 will be paid $10, so I will get $650 for my 65 shares and will be left

with 35 (possibly worthless) shares.

 

So my breakeven scenario is the shares tendered does not exceed 12.7 mil. If it does I am sc...ed.

 

Now let me see if I find any details of the earlier offer (like how many were bought back vs how many were tendered etc...)

that finetrader was referring to.

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CCRT has done a similar tender offer in 2011, and another time before. Look at the chart around May 2011, and you will see that the stock has fallen sharply soon after the tender offer expired. Also, insiders are participating in the offer. The performance of the company is horrible, and I suspect that these offers are just a way for big shareholders to get rid of their shares at a good price before it is too late.

 

Maybe the way to play it is to short the stock just before the tender offer expire.

 

If you do this, might not you be shorting shares that at that same moment are being validly tendered? 

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Thanks finetrader and Hielko (I now understand atleast understand some of the thinking behind why it is trading at $6.32).

 

Here is my take. I am not looking at it as an investment beyond 12th September.

 

As long as the total shares tendered does not exceed 12.7 mil,

my investment is zero (buy 100 shares at $650. Out of 12.7 mil 8.25 will be paid $10, so I will get $650 for my 65 shares and will be left

with 35 (possibly worthless) shares.

 

So my breakeven scenario is the shares tendered does not exceed 12.7 mil. If it does I am sc...ed.

 

Now let me see if I find any details of the earlier offer (like how many were bought back vs how many were tendered etc...)

that finetrader was referring to.

In a previous offer with a smaller premium 96% of all outstanding shares were tendered. No way that just 12.7M will be tendered.

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If you do this, might not you be shorting shares that at that same moment are being validly tendered? 

 

i don't know the rules about shorting a stock that is subject to a tender offer.. Would very much appreciate if someone could enlightened me on this.

 

Is it that someone that is short have to pay the tender price? I very much doubt so. Or is it that no share would be available for short because they all would be tendered. Makes mo sense.

 

 

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If you do this, might not you be shorting shares that at that same moment are being validly tendered?

 

i don't know the rules about shorting a stock that is subject to a tender offer.. Would very much appreciate if someone could enlightened me on this.

 

Is it that someone that is short have to pay the tender price? I very much doubt so. Or is it that no share would be available for short because they all would be tendered. Makes mo sense.

If there are no shares available to borrow - and shares tendered cannot be borrowed - you would be forced to buy back your position at market prices. If there is a large short position this could create a very bad scenario for you and you could be forced to pay a lot more than the tender price if there are not enough tradeable shares anymore to cover short positions.

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  • 4 weeks later...
  • 2 weeks later...

How does it look now? I did a similar trade, Shorted at 6.02, shorted 7,5 puts at 3,4 and bought calls at 0.10-0.5. I made 40k in 10 days, I thought I was the biggest genius on the planet. I was all cash, so the profit should be mine right? Wrong, I was liable for the tendered shares (as you might have noticed you are too, unless you where lucky), the calls do not protect this. This trade turned out to be a loss the size of 3 months worth of profits. My account is not hurt too bad, though this really kicked my ass psychologically. But I bet I am smarter now in the future.

 

 

Well it's been a profitable short. About 30% in a week! I shorted the stock at 6.00$ last week and bought 7.50$ calls for .05$ and sold 5$ put for .90$. Closed the position this morning. Still don't know if i have been lucky not to get the borrowed shares recalled, but it worked.

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It is probably safer to arbitrage the other way around, in situations where the call is overpriced, and you long the stock, write call and buy the put. But as long as you know what your doing its all good. I found this CCRT trade by accident, I just happened to notice the insane put premium screening for naked put trades. Just out of curiosity, how did you come accross this opportunity, do you actively screen for arbitrage opportunities, and if so where and how?

 

yeah same for me.

 

For about two business days I had the cash and no position in CCRR in my IB account, and then they adjusted it. Did not lose much though, but not a good feeling at all.... Should have known better

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