Lockheed Martin (LMT) – Split-off transaction – $2700 opportunity

Current Price –LMT $255.75, LDOS $50.25;

Offer Price – $1.11 stock of LDOS for $1 stock of LMT (subject to upper limit of 8.2136 LDOS ex-dividend shares per share of LMT);

Upside – 11% or $2700 for Odd Lot holders;

Expiration date – August 16, 2016;

Odd Lot holders of LMT (less than 100 shares) are not subject to proration;

SEC Filling

 

Important items to consider:

- Final exchange ratio will be determined close to the expiration of the offer (valuation dates are 9th to 11th of August 2016), therefore final payoff/loss might differ from the indicated one and depending on how shares move in the meantime this transaction might even result in losses for investors. On 11th of August the exchange ratio will already be known, so one might wait till then for the trade.

- LMT will announce quarterly results on 19th of July.

- LDOS will announce quarterly results on 28th of July.

- Before consummation of the transaction LDOS will pay special dividend to existing shareholders of $13.64. The exchange will be calculated excluding this dividend payment

- This deal is more risky than the standard odd lot tenders usually posted on this site. Do your own due diligence before investing.

Transaction details:

For each $100 in value of your Lockheed Martin common stock accepted in this exchange offer, you will receive approximately $111 in value of Splitco common stock. The value of the Lockheed Martin common stock will be based on the calculated per-share value for the Lockheed Martin common stock on the NYSE and the value of the Splitco common stock will be based on the value for Leidos common stock on the NYSE (because each share of Splitco common stock will be exchanged for one share of Leidos common stock in the Merger), in each case determined by reference to the simple arithmetic average of the Daily VWAP on each of the Valuation Dates (9th to 11th of August of 2016). In the case of Splitco common stock, the value will be reduced by $13.64 per share, which equals the per-share amount of the Leidos Special Dividend. Please note, however, that the number of shares you can receive is subject to an upper limit of an aggregate of 8.2136 shares of Splitco common stock for each share of Lockheed Martin common stock accepted in this exchange offer.

 

No proration for Odd Lot holders:

Beneficial holders of “odd-lots” – that is, fewer than 100 shares of Lockheed Martin common stock, whether held in registered form or through a broker or other nominee – who validly tender all of their shares and request preferential treatment will not be subject to proration if this exchange offer is oversubscribed.

 

 

15 COMMENTS

  1. Patient

    This is a big trade compared to the ideas usually posted. I will obviously do my own due diligence but I wonder if you could shed some light on a couple of questions:

    Given your experience following these situations, how often do these exchange ratios change? and what might prompt a company to offer these terms (that are advantageous to small holder) and what might prompt them to change them?

    1. dt

      Hi, a number of similar deals already have happened and have been posted on the site. The most recent are BAX and GE if I remember correctly. Exchange ratios change throughout the tender period until the valuation dates, sometimes drastically, sometimes just a bit. So I can not give you a definite answer on what will happen in this case. If you are more risk averse you could wait till August 11, until the exchange ratio will be known with certainty.

      Hope this helps, let me know if any other questions.

  2. Makaride

    Hi, i would like to ask you couple questions.The ex-div date of the LDOS special dividend is 17 August,this means that we cannot short sell the LDOS before this date because we must pay the dividend to the owner of the stock,is that right? Is there any alternative financial instrument to have the same effect as if we short sell the stock of LDOS,like CFD or put options? How can we play this arbitrage safe?Thanks a lot for your insight!

    1. dt

      One can still short sell LDOS to hedge. You are right that short sellers will need to cover the dividend, but LDOS share price should in theory drop by the same amount, so the net effect of dividend for short sellers is likely to be zero (or close to it). Put options could be a possibility as well, but as this is special dividend, exercise price will be adjusted by the dividend amount, so similar effect as with short position.

  3. dt

    The LMT-LDOS exchange ratio has been set and those entering the position today have a chance to lock in c. $4000 of risk free profits.

  4. dt

    I clearly did not expect LDOS to perform so well after the offer and therefore hedged my position expecting that materially increased LDOS float will have negative pressure on the share price. Well, as it turned out, those that did not hedge made profits of $7300. So hedging reduced the upside by at least $3000 – but at least my gain was risk free.

  5. Eli

    How often does a deal like the LMT tender offer come along?

    1. dt

      Hi Eli, over the last calendar year there have been 4 split-off transactions, if I recall correctly. So quite often.

  6. Anders Svejgaard Østerø

    When were this transaction executed on your accounts?

      1. dt

        A week after the expiration of the offer. So around 23-24 of August.

  7. Kim

    Why I still have LMT shares in my account? Aren’t they supposed to be automatically converted to LDOS shares?

    1. dt

      Two potential reasons:
      - you did not submit your shares for the tender;
      - you had more than 99 shares and were prorated;

      If none of the two apply for you, check with your broker what happened as odd lot LMT shares were converted to LDOS long time ago.

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