SHOSR - Sears Hometown & Outlet Stores Rights

[Studesy]

SHOSR - Sears Hometown & Outlet Stores rights started trading today on the NASDAQ.  Will be interesting to see if these rights are sold off over the next week or so as the spun out company is relatively small compared to the parent (SHLD).  Eddie L will be participating fully in the offering.  Looks as though approx 4.5 rights will allow the purchase of 1 share of Sears Hometown for $15.

 

Heres a link to the propectus:

 

http://www.searsholdings.com/invest/docs/Sears_Hometown_and_Outlet_Stores_Inc_424_b_Prospectus.pdf

 

Anyone else watching this one?

[Guest rimm_never_sleeps]

I said shos could be $28 in a couple years. but it looks like investors are valuing it at almost $25 right now. the rights look pricey unless there are some hidden assets that somebody has sniffed out. this looks like a squeeze in the rights. of course those who were short shld are now short the rights.  and they thought they would be short something that could buy shos at $15 instead of $25.

[Studesy]

Looks that way RIMM....up 40% from the open.  Will be interesting to see what happens over the next couple weeks with this.

[Palantir]

What is interesting is that ESL is buying the rights too. Rights are about 2.20, so we would want the shares to be worth far more than 17.20 for this to be worth anything.

[Guest rimm_never_sleeps]

we don't know if he is buying in the open market. I doubt it. he is going to oversubscribe. it takes 4.6 rights to buy one shos share so shos is valued at over $24 at the moment.

[drewdalton]

Rimm,

 

I agree that the current price of the "rights" has given Sears Hometown a high value. 

 

Has anyone received delivery of the rights (SHOSR) in his brokerage account?  Has anyone attempted to short the rights against future delivery?

 

 

[Guest rimm_never_sleeps]

some buyers might also believe they will exercise some oversubscription shares so they don't believe their average price will be $24+. You gotta believe there is lots of short covering going on.

[biaggio]

I think I''m going to sell tomorrow

[BRK IN MKE]

I am kind of new to subscription rights and was wondering if someone could explain how this works for the layman.

 

Here is an hypothetical scenario:

 

Lets say I own 100 shares of SHLD through Scottrade. If I am reading the prospectus correctly that gives me the right to purchase 21 (.218091 * 100) shares of SHO. In this case I would need to have $315 in my account to cover the expense of buying the 21 shares.

 

-My main question is I don't currently show anything in my brokerage account that shows I have subscription rights to buy the shares of SHO. Is it simply a matter of me calling Scottrade and informing them I would like to exercise my right?

 

-Secondly, to me it seems like the worst option of all would be doing nothing with the rights to purchase additional shares. The rights to purchase SHO seem to have some value, but I am not sure how to sell the rights if you don't want to exercise the option. If I were to do nothing I feel like it would be letting an option that is in the money expire worthless. Is this correct or am I reading too much into this?

 

 

[Guest rimm_never_sleeps]

the rights will appear soon. think of it as a dividend. you will have 100 rights. that allows you to buy 21 shares. You are correct. either sell the rights in the market when they appear in your account. or call your broker and tell them you wish to exercise the rights and buy the offering. make sure you have enough buying power to cover 21 shares at $15. doing nothing is the worst possible thing. but people still do that. in a way rights offerings can be a clever way for the the smart sophisticated savvy to take advantage of those that are less so.

[Guest]

Up a lot again today. I need to read more about this.

[biaggio]

Up a lot again today. I need to read more about this.

 

let me know what you think.

 

I thought it would be fully valued + that the run up is do to the shorts scrambling to buy stock that is in short supply (am assuming if they are short SHLD then they are also short securities that are spun off i.e SHOS)

 

I still don t see rights in my account. I use TD Waterhouse.

 

Any SHLD holders here receive SHOS into their accounts?

[Evolveus]

Up a lot again today. I need to read more about this.

 

let me know what you think.

 

I thought it would be fully valued + that the run up is do to the shorts scrambling to buy stock that is in short supply (am assuming if they are short SHLD then they are also short securities that are spun off i.e SHOS)

 

I still don t see rights in my account. I use TD Waterhouse.

 

Any SHLD holders here receive SHOS into their accounts?

 

I'm wih Fidelity and I got my SHOS rights today.

[BRK IN MKE]

I have an account through Pershing and I received my shares on Friday of last week.

[compoundinglife]

Etrade, haven't received them yet.

[Guest]

Trading now for those who participated.

[Evolveus]

Just got my shares today thru fidelity. I don't see my over subscription shares though. Anyone else have this issue?

[Evolveus]

Never mind - the over subscribed distributable rights were prorated based on number of hares owned and number of folks over subscribing which was apparently a lot according to Fidelity.

[Guest]

Never mind - the over subscribed distributable rights were prorated based on number of hares owned and number of folks over subscribing which was apparently a lot according to Fidelity.

 

Did you get any oversubscribed shares at all?

[Guest rimm_never_sleeps]

the max number of oversubscribed shares you could get was capped at 5% of the basic. this offering was in high demand to say the least.

[Evolveus]

Never mind - the over subscribed distributable rights were prorated based on number of hares owned and number of folks over subscribing which was apparently a lot according to Fidelity.

 

Did you get any oversubscribed shares at all?

 

I sure did...1 share.  Needless to say, that was a bummer.

[Guest]

anyone know how the cost basis on the shares of SHOS after exercising the right works?

[drewdalton]

Stahleyp,

 

To the best of my knowledge, here is the income tax treatment and cost basis for the distribution of the Sears Hometown rights:

 

 

 

United States

 

The distribution of the rights is considered a stock dividend.  The Fair Market Value (FMV) of the rights at the date of distribution (Oct 8, 2012) is about $1.80 / right.  This will be taxed as a federal dividend. 

 

Upon exercise of the rights the Adjusted Cost Basis (ACB) of one share of SHOS will be:

 

Cost of SHOS                            $15.00

Plus FMV of Dividend

($1.80 x 4.59)                              8.26               

                                                -----------

ACB of SHOS                            $23.26

 

Upon sale of SHOS, there will be a capital gain OR capital loss depending the price sold (above or below $23.26).

 

 

 

Canada

 

The stock dividend is treated as ordinary income (ie- no federal dividend tax credit) because it is a foreign dividend. 

 

The ACB for one share of SHOS is still $23.26.

 

Upon sale of SHOS, there will be a capital gain OR capital loss depending the price sold (above or below $23.26).

 

______________________________________________________________________________

 

 

I would think that this tax treatment is being driven by the fact that:

 

1) Eddie believes the federal dividend tax rate of 15% is going up AND

2) Both Eddie and Bruce Berkowitz reside in Florida where there is no state income tax

 

[Guest]

Drew, thanks so much for posting that. It's quite helpful! :)

[biaggio]

Congratulations to those who bought this one...up to $44 today from ~ $25. FWIW I was wrong on this one

 

Interesting article, angle on SHOS. http://myinvestingnotebook.blogspot.ca/2013/02/khrom-capital-q4-2012-letter.html