Cogitator

Blockbuster A Shares (BBI) & Blockbuster B Shares (BBI.B): Relative Value Arbitrage Opportunity

In Arbitrage, Carl Icahn, Long-Term Capital Management on September 23, 2008 at 8:43 pm

3:03 AM Cogitator: also blockbuster is just ridiculous
Client 9: who’s buying and how is it being financed?
3:05 AM Cogitator: nobody
it’s just share class arbitrage
buy the b shares and short the a shares
3:09 AM Client 9: my computer is being slow right now… what’s the spread
Cogitator: 60%
3:11 AM Client 9: wow. what’s the difference between the two securities?
3:12 AM Cogitator: b shares have two votes; a shares only have one
Client 9: how are the company’s financials?
3:13 AM Cogitator: it’s blockbuster…
pretty crappy
but if you buy the b and short the a, you will make money
3:14 AM most brokers don’t let people short sell bbi
which explains the large spread
3:15 AM Client 9: how do they historically trade?
3:16 AM Cogitator:

  1. Might want to tag this under ‘carl icahn’ as he controls the company.

    JR Ewing 24 September 2008 at 9am

  2. Thanks. I forgot about that.

    Cogitator 24 September 2008 at 11am

  3. Cogitator, what do you think of Warren Buffet’s investment in Goldman Sachs today? Certainly he must see some valuation in it.

    Kenneth 24 September 2008 at 6pm

  4. The arrangement is very satisfactory for Berkshire but not as much for Goldman Sachs common shareholders. First, the preferred shares are callable at a 10% premium to par; second, the dividend rate is 10%; and third, the warrants may ultimately be worth several billion dollars (if they are exercised, outstanding shares will increase by one-fifth). GS could have gotten more attractive nominal terms elsewhere. However, the past year has shown that balance sheet strength is highly dependent upon the confidence of customers. I believe that news of Buffett’s investment will prevent what happened at Bear Stearns and Lehman Brothers–a sudden withdrawal of accounts and a subsequent loss of earning power. Just as most of the fear regarding broker dealers is irrational, so too is the reassurance brought about by Buffett’s support–this seems to be another example of market reflexivity.

    I have no opinion on the common shares other than that a precipitous fall is almost impossible.

    Cogitator 24 September 2008 at 7pm

  5. The A/B spread is a measure of liquidity premium. The less financing around the greater the premium. Be warned, be careful.

    The Fat Man Thinking 25 September 2008 at 12pm

  6. Could you explain how the A/B spread manifests a shortage of financing?

    The historically high spread may have resulted from the exit of relative value arbitrageurs. (Donald MacKenzie writes about this in An Engine, Not a Camera.) Of course the anonymous nature of the stock market makes it difficult to be certain.

    Cogitator 26 September 2008 at 12am