Stock Deal: CBS ~$300+ Profit Per Person

[Recyclersteve]

As I bought CBS before talking about it online, I may have paid more for it than anyone else. Nonetheless, I am very pleased with how this worked out and here are the details...

Bought 99 CBS for $57.60 a share- sold 562 ETM for $11.50 a share in the pre-market session this morning (before the regular market even opened). Bought on Oct. 24th- sold on Nov. 22nd- so I held for 29 days.

Profit was $752.53 (13.2%) after commissions and fees- not bad for a VERY LOW RISK investment that was held less than a month.

Oh yeah, did exactly the same thing with the exact same numbers for my wife and daughter, so our family pocketed $2,257.59.

For those doubters still out there, this transaction was what is referred to as a Reverse Morris Trust transaction. Here are the others I've done since the first one of this type done in 2013:

EXCHG. DT. PRIMARY CO./SECONDARY CO. PROFIT TARGET PROFITABLE?
11/16/17 CBS/Entercom 8% y
9/29/16 Procter & Gamble/Coty 7.5% y
8/16/16 Lockheed Martin 11% y (this one was a whopper- made about 26%- $6k+ per acct.)
5/18/16 Baxter Intl./Baxalta 7.5% y
11/16/15 General Electric/Synchrony 7.5% y
10/5/15 Dow Chemical/Olin Corp. 11% y
7/9/15 Danaher Corp./Netscout 7.5% y
7/9/14 CBS/CBS Outdoor Americas 7.5% y
7/2/14 Weyerhaeuser/Tri Pointe 11% y
6/21/13 Pfizer/Zoetis 7.5% y
1/28/13 PPG Industries/Axiall Corp. 11% y

There was not a single dud in the entire bunch above. That said, there are tender offers from time to time that are FRAUDULENT. Unfortunately, there is a company out of Toronto called TRC Capital that does a ton of fraudulent tenders. I'm sure they won't call them fraudulent, but the bottom line is that people have their money tied up, sometimes for years, because they don't realize the terms of the tender offer. This is not to scare everyone, but if you see details of a tender offer, exchange offer, dutch auction, Reverse Morris Trust transaction (like the CBS one that several of us just did), please check with me or a knowledgable broker (by the way, most brokers don't understand these 99 share transactions and have never done a single one with their own personal money) before tying up your money. I don't want to see anyone get hurt.

A bit more on how TRC Capital operates, since they are a frequent offender. TRC specializes in mini-tenders (for under 5% of the company stock), which are not regulated by the SEC. I imagine that being in Canada makes it more difficult to prosecute them.

Here are a couple of ways they work. Stock A is currently $50 a share and TRC puts out a tender offer saying they will buy a million shares of stock at $40 a share. Why would anyone in their right mind offer to sell stock for $40 that is currently worth $50 a share? Nonetheless, there are always some gullible people who don't follow their stocks closely and think that for some reason this will be a good deal. Any right thinking person would ignore the offer and continue to hold their stock.

The other (and tricker- I might say) way they operate is this. Let's say that Stock B is also $50 a share and they put out a tender offer saying they will buy a million shares at $55 a share. The offer expires in a month. Lots of people would jump at the chance to sell the stock now for $5 more per share than it is trading for. The sleazy part is this- they get a bunch of shares tendered and wait until close to the expiration date. Then they extend the expiration date. Again and again. They might extend it repeatedly for another 1-2 YEARS. They are hoping, for instance, that over that time the stock might go to $80 a share or so when they could buy it for $55 and make a tidy $25 per share profit. You might consider taking back your tendered shares. With the mini-tenders done by TRC you cannot take back your shares, since they are tenders for under 5% of the company stock and not regulated. You are at the mercy of whatever TRC wants to do. This sounds horrible because it is!

TRC is not the only company that does this, but they are likely one of the biggest (if not THE biggest) offender. There is a deal going on right now where Walgreens has come out just in the last few days and recommended NOT TENDERING shares to TRC Capital. Do a Google search for TRC Capital mini tender (or TRC Capital fraud) and you will find lots of results.

So, I didn't mean to put a damper on what was just a very positive experience with CBS and Entercom, but I didn't want someone to say "Wow, CBS was great. What else can I do?" and go ahead and do something ill-advised.

I hope everyone's Thanksgiving is just as enjoyable as mine is likely to be.

[agmoose]

Congrats on the successful trade! I have been following along without participating. I view it as a learning experience, and appreciate your explanations.

[Recyclersteve]

Sometimes I find out about these things at the last minute. That said, for anyone who wishes to participate in the future, it might be advisable to have a brokerage account already open so that you can jump on the next one when it happens.

I know someone who wanted to do the CBS deal, but didn't have a brokerage account anywhere. We finally decided it would be best for them to pass on the CBS deal and wait for the next one (only because they were trying to do too much at the last minute).

[Sanford02]

I just edited my results report post above. I forgot to include the $35 fee for tendering.

Recyclersteve, this was a fun learning event for me, and if you become aware of this type of deal again in the future, please let us know!

[JadeDragon]

I have not yet seen the cash for the fractional share or any cost for tendering. Just paid normal $9.95 for buying and selling. I'm down for any more of these. The 99 share clause is obviously to try and eliminate small shareholders from the books (saving the company money on mailings) and to not disappoint small holders by fracturing their holding into two smaller holdings, but exploiting clause is a wonderful play.

The tender was oversubscribed - so most holders got just over 10% of their tendered shares accepted. http://seekingalpha.com/amp/news/331389 ... -cbs-radio

Steps are being taken to shore up the stock and I'm gonna let my profit ride for now http://www.insideradio.com/cbs-sharehol ... e2501.html

[Sanford02]

Another thing to consider is that the ex dividend date for ETM is Nov 27. Jade, Steve....does that change anything for you?

[JadeDragon]

One article suggested that the ex-dividend date would be a test for CBS shareholders exiting or not. The stock rose more after I sold out but I'm happy with the profit. It pays a small dividend and that is set to increase. The position joins a number of others I hold with no cost base - it's a bit of a game for me to accumulate stock positions where I've got nothing invested net into them. Recently I bought NVITA on a tip from MotleyFool (actually they were teasing trying to get me to buy their newsletter but I figured out the stock anyway). I rode it up to double what I paid and sold 1/2. I don't understand their business but now I own another growth stock that owes me nothing.

[Recyclersteve]

Another thing to consider is that the ex dividend date for ETM is Nov 27. Jade, Steve....does that change anything for you?

I thought about the 9 cent per share dividend. Here is the way I look at it. While it would be nice to make an additional 9 cents per share, there is no way to know for sure that the stock won't go down by more than that for some unforeseen reason. It went up something like 13-14% in just about 5 business days, which is a lot. I ended up making more than I expected, which is fine enough for me. To me, hanging on hoping for that extra 9 cents a share is being somewhat greedy. What if you did that and it went down $1 a share for some other reason. You'd be saying "woulda, coulda, shoulda" and would not feel too good about yourself when others cashed out right away and made a tidy sum. That's just my own personal opinion. As my dad used to say, "There's more than one way to skin a cat." Good luck in making your final decision.

[Recyclersteve]

I have not yet seen the cash for the fractional share or any cost for tendering. Just paid normal $9.95 for buying and selling.

Hey Jade:

Not sure about Canada, but in the U.S. the fractional share cash is typically paid 2 to 5 business days after you receive the stock (in this case, Entercom).

Regarding the reorganization fee for tendering, this varies from broker to broker. At Charles Schwab it is normally $39, but is waived for high dollar clients ($500k in household assets) and active traders (36+ trades in the past year). I easily qualify for a reorg fee waiver based on trading activity.

[JadeDragon]

I thought about the 9 cent dividend for about 9 seconds but the dividend was less than the bid-ask spread. I used a limit order and did not get too greedy to pull the last few dollars out. Who knows where the share price will go on a deal like this? Anyway, if the stock continues to climb I've kept a few shares to profit on that.

I'll watch what tender fee RBC charges me and report.

I've done some other special situations deals - bought a couple stocks just before a spinoff and recently bought a US bank that was being taken over by CIBC in a stock and cash deal (a nice play). I know the cash for fractional shares shows up around settlement time.