After a successful first round in this share class arbitrage last year, it’s time for round two.
The company has two classes of common stock. Both carry identical economic rights. For most of the last decade, share price of both classes have traded roughly in line with each other. Every now and then, the prices drift apart, but historically, the gap has always closed within about a year. This dynamic creates interesting, and potentially recurring, arbitrage opportunities. For example, last year one share class started trading higher than the other, with the price difference peaking at 30% at one point. The situation was covered on SSI. The gap quietly disappeared in roughly three months, resulting in solid short-term gain.
Recently, the price gap has appeared again. The investment thesis is straightforward: the difference is unsustainable and, sooner or later, the two share classes will start trading in line with each other. There are no real reasons for the two share classes to continue trading with such a wide spread. Hedging risk is minimal.
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