What is Special Situation?
Special Situation in investing refers to particular circumstances, corporate actions or specific events that tend to materially impact company’s value and share price. Generally it is a short term oriented investment that has a clear catalyst for share price appreciation and is less driven by company or market fundamentals. Special Situation examples include Merger and Acquisition (M&A) Arbitrage, Spin-offs, Restructurings, Bankruptcies, Liquidation, Tender Offers, Rights Offerings and etc.
What are Odd Lots? What is Odd Lot Tender Offer?
Sometimes when the company launches a tender to buy back shares, there will be a special provision for shareholders that have less than 100 shares, the so called odd-lot holders. This provision ensures that odd-lot holders are not prorated if the tender offer is oversubscribed, meaning that all the tendered shares are accepted, whereas for other shareholders only a portion of the tendered shares will be accepted.
The risk arbitrage set up occurs whenever shares trade below the tender price. An investor can buy 99 shares or fewer, tender at the higher price, and capture the differential within a short period of time (as little as the length of a trade settlement if guaranteed delivery is allowed). The strategy is not riskless, as tender offers can fall through for various reasons, but it is the closest thing to a freebie there is on a stock market.
How often Dutch Tenders are priced at the upper limit?
It is case by case situation and there is no hard rule for it. Historical evidence suggest that majority of Dutch tenders during 2013-2015 were priced at the upper limit.
Which broker to use?
Interactive Brokers is probably the most cost efficient broker you will be able to find.
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