Stock Deal: CBS ~$300+ Profit Per Person

[Recyclersteve]

I'm going to try to keep this one fairly short and sweet. That said, the process is a bit involved. BOTTOM LINE: If you have a brokerage account with an extra $6k or so to invest, I have a way you should be able to make (conservatively) $300 or more in the next month or so. Realistic profit is probably more like $400-500+ per person with an approximately 97%+ chance of the deal being profitable. Not a guaranteed profit, but very close to that.

Still interested? Here is what you need to do. First you need to have a brokerage account with somebody. It doesn't really matter who the account is with, as long as they don't charge sky high commissions. Right now Fidelity and Schwab both have $4.95 online commissions. Plenty of others are under $10.

Realize you are going to pay the regular online commission to buy CBS- simple enough. There will then be a Reorg fee for your broker to tender your shares, whether you do it online or call a person at the brokerage firm to process your trade. This is different than the online commission as there is more work for the broker to tender the shares. I'm guessing the Reorg fee will be from $25-45 per account- again it varies from broker to broker.

Now the good stuff- CBS Corp. Class B (Ticker: CBS) (yes the CBS broadcasting network- that CBS!) is selling their radio station business to a smaller company called Entercom Communications (Ticker: ETM). If you buy 99 shares of CBS stock, they will be converted into a different number of Entercom stock in mid-November. You should have approximately 500 or more shares of Entercom as it is a cheaper stock than CBS. The exact number of shares you get is determined by a complicated formula and won't be known till mid-November. As soon as you get the Entercom stock, check the value of the stock to make sure you have a fair enough profit and then you can sell the stock right away if you'd like to pocket the profit.

CBS is putting in a 7% kicker, meaning they want shareholders who do this to make an approximately 7% (or more) profit on the deal. They did one of these same transactions (called a Reverse Morris Trust transaction) back in summer, 2014 for their billboard business. The kicker then was 7% and yet I made over 10% after commissions/fees- not bad for a month or less.

Important consideration- why not buy more than 99 shares? Because you will likely lose money if you do. At the very least you will be taking on a lot more risk. See, CBS has a clause which says that beneficial owners of 99 shares or less who tender all of their shares will have all of them taken. If you have 100 or more shares, they will almost certainly take only a small portion of the shares and return the rest to you. In 2014, when they did this same type of transaction, they took 15% of the shares from holders of 100 or more and returned the remaining 85%. So you had a decent profit on 15% of your position and likely lost money on 85%- not a good recipe in my book. Who says wealthy people and hedge funds have all the advantages? Not in this case!!!!!!!

For those who have friends/loved ones with brokerage accounts, you can do 99 shares in each person's account if you like and all the shares will be taken. That is, you will NOT be prorated! The brokerage firm you have your account(s) with basically looks at the social security number of the person who owns the account to determine beneficial owner. For a joint account, they look at the person listed first and use their social security number. Parents who have lots of kids can really clean up on deals like this as they can buy 99 shares for each kid in the house!

Questions about the 99 share amount:

1. Q: Can you buy less than 99 shares if you don't have enough money to do 99? A: Yes, but please determine in advance that you will still be likely to make a profit. Also, you must tender all your shares. If you buy 50 shares, you must tender all of them.

2. Q: I have 50 shares of CBS in an account that is managed for me. Can I still buy 99 in my self-directed account and tender them? A: If you buy 99 you will be the beneficial owner of 149 shares and almost certainly be prorated and have the vast majority returned to you. Even if you tender only 99 of 149 shares, you will have the majority likely returned to you.

Although the exchange deadline is November 16th, most brokerage firms will have a deadline for their clients that is perhaps 2-3 days before that. Also, some firms might want the trade to be settled before shares can be tendered, which takes 2 business days. In other words, don't wait till the last minute to do this. You may be disappointed if you do.

There is much more info on this subject in my 6-page posting on SeekingAlpha.com. Type "CBS" in the top right corner of the home page. Look for an article dated 10/20/17 by Uncorrelated Returns titled "Entercom: CBS Exchange Offer Creates Arbitrage Opportunity." Scroll down below the article where the comments begin and you will see lots of information posted by this guy named Steve Moore- hey that's me!

Feel free to post questions you have either on this site or on the SA site if you prefer. Good luck to anyone who tries this. I wouldn't stick my neck out on this if I didn't think it had a high probability of being profitable. And, of course, I have no hidden agenda in doing this. It is more of a "paying it forward" type thing for me.

[Recyclersteve]

I got a question via private message and thought I would answer it here for the benefit of all. The gist of the question was about how to let your broker know that you want to be involved in the tender offer.

My answer: Think about a normal stock transaction. It is two steps- 1) buy XYZ stock; and 2) sell XYZ stock. This transaction has an additional step, so there are three steps. They are- 1) buy CBS stock; 2) call broker and ask them how to tender your CBS shares to exchange them for ETM shares (if you can do it online, it will be likely much cheaper than if you have to get the broker to place the instructions for you); and 3) sell ETM stock when you get it (assuming you are happy with your profit position at that time.

The official exchange deadline is 11/16/17, but the deadline for you at your broker will likely be 2-3 days before that. My broker's deadline is 11/14/17 (Tues.), so check to be sure.

You will almost certainly get the ETM stock outside of regular market hours. With my broker the shares arrive late at night, so often times I sell in the pre-market stock session before the regular market even opens the following day. Expect ETM to be down perhaps 1/2 to maybe 1 1/2 or 2% early when you get shares since there will be lots of others selling too and some will just use market orders to sell, which could be a bit careless.

Now if you see ETM down say, 10-12% early on the day when people get their shares, I wouldn't sell at that price. In fact, I'd likely place another order to scoop up some more ETM on the cheap and likely sell both batches of stock at a profit. This has only happened perhaps a couple times in the 40-50 transactions like this that I've done since 2011, so don't bet on it. Still, a market order to sell ETM at the open when you get your shares is ABSOLUTELY NOT RECOMMENDED.

[Sanford02]

When do you plan/recommend to acquire the CBS stock? Now? Closer to exchange deadline?

[Recyclersteve]

Thanks for asking a very appropriate question.

I already bought mine. The math looks good on the deal right now. I usually buy as soon as I find out about the deal and discuss it with my wife, as the math is almost always favorable to do so.

There are times in the past that some of my friends have chosen to wait til closer to the deadline to buy and, on a number of those occasions, they regretted doing so. In one case, a friend bemoaned that close to the deadline he would only make about 1% or so.

That said, CBS and ETM both announce earnings next week (11/2- Thurs.), so if you are jittery about earnings you could wait until perhaps the following day. But CBS isn't a normally very volatile stock. No absolute guarantees of a profit, but I would be very comfortable with buying the stock right now. Clarification: Comfortable with buying to participate in the exchange offer, not buying to just hold the stock.

[JadeDragon]

No mention of the 99 share provision here but it explains the exchange process. I like special situations like this. https://www.cbscorporation.com/2017/10/ ... cbs-radio/

[Recyclersteve]

You can see the odd lot provision mentioned in paragraph 12 at cbscorpexchange.com. Hey Jade, are you able to do these with a Canadian account or do you have dual citizenship?

[Recyclersteve]

Also, you can see the incentive provided by CBS in paragraph 7 at cbscorpexchange.com. They say "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." I am pretty sure that I saw 7% mentioned elsewhere. Nonetheless, the last time they did an exchange offer (to sell their billboard business in summer, 2014) they mentioned a 7% incentive to buy the stock and my net profit was over 10% after commission/reorg fee.

As CBS and Entercom both announce earnings on Thursday, November 2nd, some might choose to wait til after earnings to reduce the chances of having something ugly happen related to earnings. That can cut both ways, however. So I'll let everyone else on this site decide how they want to handle the risk of earnings not being up to snuff. FYI- I have already bought and tendered the stock.

If you sell Entercom when you receive it in your account(s), you should have your likely profit before Thanksgiving. There is no absolute guarantee of a profit, but it is very, very likely based on how these corporate actions have performed over the last 6 years. This could give you something else to be thankful for this year.

[JadeDragon]

All Canadian brokerage accounts are set up for trading in US stocks. I’m going to call back today. The RBC rep I spoke with was a generalist not in specific department that handles corp reorgs.

[Recyclersteve]

All Canadian brokerage accounts are set up for trading in US stocks. I’m going to call back today. The RBC rep I spoke with was a generalist not in specific department that handles corp reorgs.

Hey Jade, can you let those of us in the U.S. know how the CBS trade works out? You should have ETM stock in your account by the last week of November at the latest. I have a few other friends in Canada that I didn't discuss this with because I thought it would be a waste of time. I won't say a thing to them until AFTER the CBS deal is over.

[JadeDragon]

I was advised that RBC should be able to accept tender instructions next week. I bought just 80 shares as there was nothing I really wanted to sell to raise more cash. Stock has dropped a bit since I bought it, but no worries.

[Recyclersteve]

These things move up and down a bit and sometimes you might even think that you're gonna lose perhaps 2-3% before the deal expires. Then, things often firm up as we get closer to the deadline. Since earnings were announced by both CBS and Entercom today, you've got that one bit of info now out of the way, which should reduce volatility over the next few weeks. It is possible that early Friday (first hour or so until 10:30amish EST) there will be some volatility for CBS since the earnings for them came out in after hours on Thursday. Entercom was announced before Thursday's open, so it had all day Thursday to react and stabilize.

[Recyclersteve]

For anyone who bought CBS anywhere near the low of $52.75 last Friday, it is now $59+. I'd consider just selling CBS outright at this point or withdrawing shares you have tendered and selling them in the open market. That way you are locking in a nice profit right now, one that is even better than the 7-8% target.

I've gone both ways in the past (sell now with a profit or continue with tendering). Sometimes, when something ran, I just sold my shares in the open market before tendering. Other times, I felt there still could be more and continued to hold. This was generally based on how much money I had at risk in addition to market conditions.

If you wish to roll the dice and continue to hold, there is still an excellent chance that you will have a nice profit. Media stocks as a group (not all, but a number of them) are acting well on the report which came out yesterday that Disney (Ticker: DIS) is looking to buy Fox (Tickers: FOX and FOXA).

[Sanford02]

I bought 99 shares last week at $55.42, and called my broker to tender them yesterday. I am up over $300 now, but I think I will hold for the moment. OP, what are you doing with your shares?

[Recyclersteve]

What does OP mean?

[Rodebaugh]

What does OP mean?

Original poster....tis' you brother.

[Recyclersteve]

What I do will depend on how both stocks act. If CBS does something like quickly go to $65ish (not likely), then I will check the indicative exchange ratio (IER). It is updated daily at cbscorpexchange.com. Let's say it shows an IER that would give me a roughly 7% profit and I can just sell my CBS right now without tendering and make 12-14%. Then I'd most likely sell the CBS and avoid the tender itself. It depends on the IER.

Keep in mind that this isn't a bulletproof strategy. You won't know the final IER until it is too late to do anything about it. Nonetheless, there is a point where I would just feel that waiting for even more profit would be acting greedy. Probably around a 12-14% profit on CBS is that point. And I paid $57.60 for 99 shares of CBS for each of the 3 people in my family.

By the way, most brokers will allow you to change your mind and take back shares that you've tendered, as long as you do so before their in-house deadline.

At today's close the IER was 5.6219, meaning that if the deal had already ended you would end up getting that many shares of ETM for each share of CBS. The maximum possible IER is 5.7466.

[JadeDragon]

RBC called me today to book the tendering of the shares. I’m in at 80 shares for avg 56.6344 = $4,530.75 book cost

[Recyclersteve]

Friendly reminder- don't forget to tender your shares of CBS. Also, for those with 99 or less per tax ID, you will need to tender all of your shares to have them all taken. In other words, you can't buy 99 and decide to keep half. You must tender all the shares you own in order to escape proration.

Also, regarding the deadline, it varies from broker to broker. So don't use the official exchange deadline of 11/16 (Thurs.)! Most brokers will have a deadline that is earlier than that. With Schwab it appears the deadline is 11/14 (Tues.). With Merrill Edge it appears it is 11/15 (Wed.). Call them yourself to be safe.

The fee for tendering will be different than a regular commission- there is more work that brokers do when people participate in stock exchange offers. Expect anywhere from $25 to $45 for this fee. It could be less if you do it online, but you will need to ask the person you call if it can be done online.

I don't want to hear any sad stories from people who should have made money but missed out due to a technicality!

[Recyclersteve]

I have some more info about the CBS/Entercom deal. The final exchange ratio was just posted a bit ago and it will be 5.6796 shares of Entercom for each share of CBS. Cash will be paid in lieu of fractional shares.

So, if you bought 99 shares of CBS, you should get 562 shares of ETM plus about $2-3 in cash for the fractional share. The cash will likely take a few extra days to be paid.

Shares of ETM should be in your account(s) sometime between Nov. 22nd and the 24th and may arrive late at night well after market close. Once you get your ETM, you can sell right away if you are satisfied with your profit. Often times I will even sell my shares during the pre-market session to lock in a decent profit. Try to avoid using market orders, however!

[JadeDragon]

I did 80 shares and temdered them all. I think the math is 80 x 5.6796 = 454 shares of Entercomm which at $11 a share today = $4,998. My cost $4,530 including commissions to buy. There will be some cost to tender and sales commissions to exit, but it's looking good. CBS is down slightly since I bought it.

[Recyclersteve]

I did 80 shares and temdered them all. I think the math is 80 x 5.6796 = 454 shares of Entercomm which at $11 a share today = $4,998. My cost $4,530 including commissions to buy. There will be some cost to tender and sales commissions to exit, but it's looking good. CBS is down slightly since I bought it.

You still have some risk that ETM stock goes down over the next week or so before you get your shares. But I wouldn't be too concerned about the day-to-day gyrations, down 50 cents one day and up 50 cents the next. Barring something unexpected occurring that is fairly major, you should be fine.

I do want to hear how everyone does after they actually sell their ETM stock. It will be interesting to see the numbers.

[JadeDragon]

Ya I'm usually a long term investor. Not worried about little ups and downs

[Recyclersteve]

Check your brokerage accounts everyone! You should have your shares of Entercom (ETM) in the accounts. If you bought and tendered 99 shares of CBS, then you should have 562 shares of ETM in the accounts. My shares arrived late tonight (Tuesday). I will most likely sell my shares Wednesday. I bet we had a few people who made more than the $300 profit target which I initially mentioned at the start of this thread. These things often work out even better than what is targeted in the first place- it is not at all unusual.

Happy Thanksgiving to all!

[Sanford02]

I bought 99 shares of CBS on Nov 3 for $55.42.
I sold 562 shares of ETM on Nov 22 for $11.50.

My net gain (including the $3.27 for partial share) was $961.64. That's after all fees and commissions, but before taxes.
The whole deal was 19 days, so it turns out to be an annualized return of 407% !!!

**EDIT**
I forgot to include the $35 fee for tendering the shares...so my net gain was $926.64 for an annualized return of 390%

[JadeDragon]

Sold 389 shares of Entercom at 11.6591 for proceeds of $4,525.32 USD basically recovering my $4,530 purchase cost on 80 shares of CBS. That leaves me with 65 shares worth $11.65??? =$757 in unrealized profit I'm going to let ride. Stock even pays a 9 cent dividend and looks like a decemt hold. I'm guessing I'll get some Cash for the fractional share too. Very nice play using a little noticed clause in a merger. Thank-you very much.