about Corporate action: UBS

EarthJade

I am still learning this trick. UBS (Swiss bank) is issuing stock right issue. This means it will issue new shares with a discount and this also means it needs new cash. Right issue in this case is that if you have 20 shares of UBS before today and you pay some extra (20.XX dollars), you will be awarded 7 shares.
So the fair price of UBS after this right issue will be 27.XX dollars given its closing price before today is 29.XX dollars, since the new shares diluted the original shares.
However, the price of UBS is 25.XX now. This is because people lose some confidence in the stock (they wonder why UBS wants to raise money by issuing new shares with such a big discount). For we retailers, there is two chances to take advantage of this corporate action: 1). use this loss of confidence, short the share before the right issue is exercised. 2). The 25.XX now is a not fair price for UBS, since its intrinsic price should be 27.XX (if the big market permets). Then we should long it now.
Anyway, this is my thought, there are quite some corporate actions. The key is to find the patterns and take advantage of them with low risk and high return.

jsl

rights was set to 21 , that's the price they might attract new equity investors. so what would you do?

[ 本帖最后由 jsl 于 2008-5-27 13:32 编辑 ]

天真的冷酷

people predicted the price would be dropped down to 10. I don't dare to buy UBS. UBS might file bankrupcy.

EarthJade

(29.91+0.35*21*0.976)/1.35 = 27.46 29.91 is the closing price. offer is 7 new shares for every 20 shares, so the ratio is 0.35. to buy the right, u need to pay 21*0.976 dollars. (0.976 is the currency conversion, 21 is in swiss frank). so the fair price after dilution is 27.46. I know long finance is not a good idea in a long run, but this week it is due for a rebound. for any corporate play, I only consider short-term trade, taking advantage of sudden change.

EarthJade

I actually shorted it on last Friday with some xlf call to hedge. Indeed it dropped big today though some of the drop is due to dilution. But I think the market overreacted a little bit now. Let's see how it goes. Actually hedge funds like to play this kind of instances too.