Current Price –CBS $58.45, ETM $11.20
Offer Price – $1.08 stock of ETM for $1 stock of CBS (subject to upper limit of 5.7466 ETM shares per share of CBS)
Upside – 8% or $470 for Odd Lot holders
Expiration date – November 16, 2017
This is a standard split-off transaction of which I have already posted quite a few. The most recent ones were PG/COTY and LMT/LDOS split-offs. CBS also had another split-off back in 2014. I recommend reading through those and examining share price behavior during and after the tender to familiarize yourselves with risks involved in this kind of transaction.
Important items to consider:
- Final exchange ratio will be determined close to the expiration of the offer (valuation dates are 10th, 13th and 14th of November 2017), 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 15th of November the exchange ratio will already be known, so one might wait till then for the trade (however the upside in the trade might be gone by then).
- Transaction is subject to upper limit of 5.7466 ETM shares per share of CBS. At current prices the exchange ratio is at 5.64, thus already fairly close to the upper limit. If the spread widens (i.e. CBS get more expensive and ETM gets cheaper) during valuation dates, the final pay-off will be less than 8%.
- There are no ETM shares to borrow (at least on IB) for hedging the to-be-received ETM position. Thus investors would be exposed to ETM share price fluctuations after the expiration of the tender (usually new shares are distributed within one week of the tender expiration). In some cases arbitrage on split-off transactions has worked out better without shorting (e.g. LTM/LDOS split off), but it is hard to know in advance. Approximately 72% of post split-off ETM stock will be held by current CBS shareholders so after the tender there will likely be quite a bit of selling pressure, especially keeping in mind that there is no ETM borrow at the moment.
- Only c. 5% of the CBS shares will be exchanged in the split-off, thus CBS market price is unlikely to be effected much by this arbitrage situation - as opposed to ETM where the share price over the next month is likely to be materially affected by the arbitrageurs.
- Both companies are expected to announce quarterly results in the beginning of November before the expiration of this transaction.
For each $1.00 of CBS Class B Common Stock accepted in the exchange offer, you will receive approximately $1.08 of Radio Common Stock, subject to an upper limit of 5.7466 shares of Radio Common Stock per share of CBS Class B Common Stock. The exchange offer does not provide for a minimum exchange ratio. The value of CBS Class B Common Stock and Radio Common Stock will be determined by CBS by reference to the simple arithmetic average of the daily volume–weighted average prices on each of the Valuation Dates of CBS Class B Common Stock and Entercom Class A Common Stock on the New York Stock Exchange during a period of three consecutive trading days ending on and including the second trading day preceding the expiration date of the exchange offer period. Based on an expiration date of November 16, 2017, the Valuation Dates are expected to be November 10, 2017, November 13, 2017 and November 14, 2017.
No proration for Odd Lot holders:
Beneficial holders (other than plan participants in the CBS Savings Plans) of odd-lots who validly tender all of their shares will not be subject to proration if the exchange offer is oversubscribed and if CBS completes the exchange offer (those who own less than 100 shares but do not tender all of their shares will be subject to proration).