Wednesday, December 29, 2010

$100 Give-Away

This isn't a contest, this is what the market is offering you! Phoenix Footwear Group (PXG) wants to go private. In so doing, it needs to shed some shareholders. As such, it plans to conduct a 1-for-200 reverse-split, followed by a 200-for-1 split. In the process, it will pay cash to shareholders who own less than 200 shares.

Phoenix Footwear currently trades at 25 cents per share, but the company will pay out 75 cents per share to shareholders owning less than 200 shares. This means the shareholder has to spend $50 to get a payout of $150, for a profit of $100. A few months ago, we saw Boss Holdings (BSHI) do something very similar.

In so doing, the company hopes to get down to less than 300 shareholders. This would allow the company to cease its registration with the SEC, and therefore save a bunch of annual operating costs. As the company trades for just $2 million, the costs associated with registration are rather onerous.

It should be noted, however, that the shareholders still have to approve this plan. They will vote on it in late January at the annual shareholder meeting. Furthermore, shareholders may have to get their brokers to change the shares from being held in "street name" to their own names in order to participate in the payout. If you plan to participate, you should talk to your broker about how your shares will be treated.

Disclosure: None

12 comments:

Paul said...

Saj,,
Take a look at JGBO.I have to be missing something here. Yes, it's a Chinese company so it may be fraudulent.

Operating income at $50 million. Insiders own over 3% of the company (mostly 1 director). Cash of $109 million with liabilities at $68. Market cap is only $78 million.

Not including any assets but cash and backing out liabilities gives us $41 million, plus they are very profitable and have been since 2008.

This seems too good to be true and I have to be missing something.

Anonymous said...

take a look at COSN, a very similar micro cap arbitrage situation with slightly better looking returns than this one. thanks for the tip Saj!

eclecticvalue said...

I was looking at COSN. It looks interesting but checked out their website and it seems like a vague company. Plus the spread does not look like much at all. it trades at a current price of $1.90 and they are going to payout $2.24

Saj Karsan said...

Thanks Paul and Anon. I will post here if I have any comments on those.

Anonymous said...

Anybody know how to make sure the stock is held in your own name with etrade? Also, is there additional cost involved?

Paul said...

Saj,

It looks like you may be taking a well deserved break today. I hope things are going well for you. Have a happy New Year, too! :)

Anonymous said...

Thank you for alerting readers to this situation. Might I ask - how did you go about findings this opportunity? Are you simply on the lookout for proxies that are filed each day? Or is there another search strategy employed? Thanks in advance.

Saj Karsan said...

Thanks, Paul. I actually take a lot of breaks ;) but I schedule the posts in advance. Just a clerical error on my part, which is why it came out late the day of your comment.

Hi Anon, I discussed my stock idea sources in a previous post. This particular idea came from a screener.

Anonymous said...

Does the reverse split apply to shares held under street name as is the case with any brokerage acct.
How to have the securities in your name instead of street name?
How much does it cost?

mike212 said...

Every broker has a different fee to get a certificate. Ameritrade is $50 but the fee is waived for APEX customers.

mike212 said...

I attempted to request a certificate for a similar situation in a different symbol (COSN) and received the following response...

This security is currently chilled at our depository, The Depository Trust & Clearing Company (DTCC), meaning that we are unable to request a certificate or transfer the shares for you at this time. A chill is a special restriction that can be placed on a given security by DTCC, which is intended to limit the potential for problems within the financial marketplace, and can be placed on a security for various reasons. This will restrict brokerages' ability to transfer the shares of the security through DTC, until the security's issues are cleared up or it ceases trading on the market.

Looks like this is done to prevent exactly what we are talking about.

eclecticvalue said...

Hi Anon, they are only going to pay record holders. They are not going to pay street holders "people who bought it in their brokerage account". So you do have to transfer it or get certificates which cost a lot of money. The run up today is ridiculous.

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