Monday, February 1, 2010

Boss Holdings Inc. Arbitrage

Boss Holdings represents a super small, but thought provoking arbitrage play. Thanks to Barel Karsan for alerting me to it. Certainly, this won't make you rich, but, for those of us that are often fascinated by interesting financial transactions, it is a cool thing to do if you have a marginal amount of cash laying around. Basically, if you own 99 shares, which are trading at $6.21/shr, you will be getting $7.65/shr just after a reverse, then forward stock split, so that the company can not file with the SEC.

From page 12 of the company's recently filed PRE 14A:
What if I hold fewer than 100 shares of Common Stock and hold all of my shares in street name?
If you hold fewer than 100 shares of our Common Stock in street name, your broker, bank or other nominee is considered the stockholder of record with respect to those shares and not you. It is possible that the bank, broker or other nominee also holds shares for other beneficial owners of our Common Stock and that it may hold 100 or more total shares. Therefore, depending upon their procedures, they may not be obligated to treat the Reverse Stock Split as affecting beneficial holders’ shares. It is our desire to treat stockholders holding fewer than 100 shares of our Common Stock in street name through a nominee (such as a bank or broker) in the same manner as stockholders whose shares are registered in their name. However, we or our transfer agent, Continental Stock Transfer & Trust Company, may not have the necessary information to compare your record holdings with any shares that you may hold in street name in a brokerage account and these banks, brokers and other nominees may have different procedures for processing the Reverse Stock Split. Accordingly, if you hold your shares of our Common Stock in street name, we encourage you to contact your bank, broker or other nominee.
What happens if I own a total of 100 or more shares of Common Stock beneficially through multiple brokerage firms in street name, or through a combination of record ownership in my name and one or more brokerage firms in street name?
We may not have the information to compare your record holdings and your ownership through a brokerage firm or to compare your holdings in two or more different brokerage firms. As a result, if you hold more than the minimum number of shares, you may nevertheless have your shares cashed-out if you hold them in a combination of record and street name or through accounts in several brokerage firms. If you are in this situation and desire to remain our stockholder after the Transaction, we recommend that you combine your holdings in one brokerage account or transfer any shares held through a brokerage firm into record name prior to the effective time of the Transaction. You should be able to determine whether your shares will be cashed-out by examining your brokerage account statements to see if you hold more than the minimum number of shares in any one account. To determine the Transaction’s effect on any shares you hold in street name (and possible payment of the cash consideration), you should contact your broker, bank or other nominee.
Insiders own the bulk of the company and will certainly vote for the transaction that they came up with. The company expects to save ~$340K per year from not having to deal with being an SEC filing company.

The really cool thing about this, as was pointed out in the filing, is that if you have multiple brokerage accounts, even with the same broker, you are able to own more than the 99 shares and have them bought back by the company. As I personally have 5 different accounts, I am the owner of 495 shares of the stock and will net a virtually risk free $690 bucks for doing little more than entering in some commands on my computer and having just north of $3K tied up for what I estimate to be under 6 months; not a bad risk adjusted return! Even if the transaction doesn't go through, the company is still cheap- so you won't be stuck with a bad investment.

Disclosure: I own shares of Boss Holdings. This is not financial advice. Do your own research before investing.

1 comment:

Anonymous said...

After closely reading Boss Holding's recent 10-K filing, $7.65 might not be such a fair price