FON/PCS recombination

I'm wondering if anyone has an opinion on the lawsuits seeking additional compensation for PCS shareholders.

Presently, the exchange ratio is 1/2 share of PCS for each share of FON.

 

C'mon, nobody has an opinion?

 

Barry,
I've posted numerous arb questions and opinions on this site and they always fall on deaf ears. It's the easiest, lowest risk way to make money, but no one is interested in it. They all want to know how to make two points in ES.

I don't do much M&A arb, usually just on newly announced deals. WC-OHP would be a good one. Sorry I couldn't answer your question.

 

maybe it's good they don't respond

 

See? Your post was up a whole day and a whopping 70 people have even LOOKED at it.

 

As far as I know the lawsuit originating in New York is the only remaining suit. There was a press release saying the Kansas suits were dropped. I'm playing the spread agressively from the short side (Long PCS) at any numbers above zero. I still play this one long because it seems that the lawsuits are without merit. People's fear of this suit seems to actually be a beneift, helping the spread move around quite a bit.

 

I guess people don't like safe money. This spread is much easier to trade than any merger I've ever traded.

Traderprofit. I read your post on another thread saying that you're trading around 500,000 shares per day. I'm stuck in the 200,000 - 300,000 range. I know that you won't want to divulge what your trading but could you tell me how many spreads you focus on for that volume? The majority of my volume is currently coming from FON/PCS and JPM/ONE.

Thanks

 

This was the response I got from investor relations.

"The conversion ratio is actually .5 shares of FON for each share of PCS. As this ratio was established by Sprint’s board of directors and supported by thorough analysis of various factors, including an independent fairness assessment by Lehman Brothers, there will be no change to the ratio barring an unfavorable outcome from the pending litigation. That said, you may be aware that the request for an injunction to delay the April 23rd recombination was dropped.



On the matter of FON and PCS trading at a ratio other than that stated in the recombination notice, there are a number of factors that likely account for this activity including arbitrage efforts and speculation about the outcome of the class action lawsuits. I’d note that any apparent discount to FON could be equivalently viewed as PCS trading at a premium. The latter might even be considered the more appropriate perspective given that FON is the anchor equity to which PCS will convert. "

 

This is actually a pretty safe play because there is no shareholder vote.

Since PCS is a tracking stock, the shareholders don't have much recourse (another reason why there hasn't been many tracking stocks).

Since the company got a fairness opinion, they are pretty much insulated from any lawsuits. Expect the lawsuit to be dismissed and the companies recombined into one.

 

I have discussed this with counsel. My attorney contacted the plaintiff's attorney.

The news is obviously the injunction request was dropped.

So here's an issue: Let's say you are short PCS, long FON.

At some future date , FON settles. PCS shareholders as of a certain date are due cash or stock. Since you created add'l float by shorting, would you then be obligated to pay the compensation on the PCS stock if you were short as of whatever record date is decided?

It seems farfetched, but if you think about it, when you are short, there are two long holders of PCS. The company would only pay on the O/S shares at the time.

The same issue arises with shareholder voting.