Ok, we got this year’s split-off exchange offer, courtesy of Lennar (LEN). It’s the usual setup: buy stock in the offeror (LEN) and then trade it for stock in its recent spinoff, Millrose Properties (MRP). This is subject to an odd-lot priority of 100 shares, so if you buy 99 shares of LEN, then they guarantee you get to exchange the full amount, if the deal goes through. Ultimately, you’re buying MRP at a 6% discount.
At current prices and exchange ratio, you’re set up for a profit of about $1,000. You can buy LEN and then short MRP, though I haven’t checked the cost of borrow on MRP. However, this offer has a wrinkle: It’s been postponed once because of the government shutdown (the SEC won’t review the registration statement) and may well be postponed again. They’ll notify investors on Nov 7, if it’s going to be postponed again. If the deal is going through, they’ll notify you of the exchange ratio the day before. That’s the day I’m waiting on…
Based on what I am seeing today - the profit is abou $755. 99 shares of LEN at 122.58 is 12, 135.42. This converts to about 404 shares of MRP, each worth 31.89 or 12,890.48
Not Bagger Dave like, but not bad. Can we do this in multiple accounts?
We’ll get the exact exchange ratio the day before the offer expires, so you’ll know that rate. It looks like there’s a good chance that the shutdown continues, so we may see further delays here. In any case, there’s no reason to rush in yet.
You can do this only once per SSN, or you’ll own more than the odd lot priority. So once for yourself, once for a spouse, once per child, etc.
We haven’t seen Lennar announce a Friday night extension, as they did before. In general, companies doing these exchange offers announce the day before the expiration date what the official exchange ratio is going to be. So if this deal is going through as announced, we should hear the exchange ratio on Thursday morning, giving investors time to buy the 99 shares (for the odd lot provision) that day and contact their brokers to tell them they want to participate before the expiration on Friday. Once you know the official exchange rate, you can also short the expected number of MRP shares that you should receive or you can go unhedged. (Last year’s split-off exchange soared in the week or two after the exchange closed.)
That said, there’s no guarantee that this offer goes through yet, even now that the SEC is open. So we may yet see a delay. That gives yet another reason to await the official announcement of the exchange rate.
Just bought $LEN in my account and asked IBKR to submit it for exchange offer. This time I am not shorting $MRP. Since the settlement date for LEN is tomorrow, whether it will be submitted for exchange in time is not clear. So I will wait until monday morning to short MRP. Also, I can save 3 days of short fee’s Of course hoping $MRP share price holds up…
I just bought LEN this morning and then submitted my instructions at IB through their form. It should appear in your mailbox. I haven’t had any problems with IB getting these elections in on time. I haven’t shorted MRP either. Maybe we’ll see some selling pressure come off by Monday (lower cost of borrow, etc).
Of course hoping $MRP share price holds up…