Altaba (AABA) – Tender Offer – 2% upside

Current Price – $80.17

Exchange Value – $81.68

Upside – 1.9%

Expiration Date – 11th July 2018

Tender Offer document

 

A number of members have emailed me re. Altaba/Alibaba tender. I have no position myself, but posting the below thoughts for information.

AABA’s largest assets are 15% stake in Alibaba and 35% stake in Yahoo Japan. Company tends to trade at c. 25% discount to its NAV mostly due to expected tax liability on the realisation of its Alibaba and Yahoo Japan holdings (full NAV calculation here). Aiming to partially reduce this NAV discount, Altaba launched tender offer for 24% of the outstanding shares.

Every tendered share of AABA will be exchanged into 0.35 BABA shares plus cash consideration equivalent to 0.05 of the VWAP of BABA during the second day preceding the expiration of the tender (i.e. July 9th).

There is an odd lot provision as well (with $150 upside), although I doubt the offer will be oversubscribed as it is relatively large and it is carried out at a discount to tax adjusted NAV ($85.23 based on management’s indications). Besides this tender is slightly accretive to NAV, so it might make sense to continue holding AABA shares especially if one expects management to find a way to reduce tax leakage on the sale of Alibaba and Yahoo Japan stakes.

At current prices transaction implies 1.9% spread and one can follow daily spread updates on this site. The arbitrage would work by shorting 0.4 shares of BABA for every tendered share of AABA and then closing part of the short after the 9th of July (if BABA volatility is high on the 9/10 of July, the spread might be eaten away). Or alternatively one can enter hedged position on the 10th of July when payouts are certain.

 

Withholding taxes

Non-US holders might be subject to withholding taxes, which would cause the whole arbitrage to end in loss. I am not entirety sure why withholding taxes would need be applied in this case but not other tenders.

If you are a Non-U.S. Holder (as defined in Section 14), the Offer Consideration may be subject to 30% U.S. federal withholding tax unless you properly establish a reduced rate of, or an exemption from, such withholding tax.

 

 

 

8 COMMENTS

  1. AV

    I’m not sure if this withholding tax issue is different here than with other tender offers. With some brokers you have to file a form 302 certification thing for every tender offer, otherwise you they will withhold 30% (as a non-US person).

  2. Michael Lax

    I realized the discount is more like 2.2%, the 5% is based on NAV

  3. dt

    With one week left to tender expiration, the spread remains at 2%.

    There is no guaranteed delivery, so shares need to be acquired by Monday 6th of August to quality for the tender.

  4. Michael Lax

    Can the shares be purchased on the day of August 6th, or does it need to bought by close of trading this Friday, August 3rd? I am asking as I have funds which will settle on Monday.
    Thanks

  5. greg lia

    Wondering if those who are participating in this trade fully hedged have given any thought to how to cover 1/8 of the BABA short on Monday. Since the cash portion is based on the volume weighted average of trades on Monday, (this is my understanding) waiting until the end of the day it seems, leaves you at risk of overpaying if the stock moves up during the day and closes at the near the high. Conversely, if you buy at open or during the day, and the stock moves down and closes near the low, you also would end up overpaying. Anyone have a plan for this or am I missing something?

  6. Martin Hernon

    Yes, I closed out 1/8 of my hedge, sorry just noticed comment

Leave a Reply

Your email address will not be published. Required fields are marked *