As many value investors know, investing in smaller companies and obscure securities is the best way to outperform and generate investment returns as a small investor. Many of these securities are neglected due to their size and thus mispriced. A sub-set of value investing involves researching companies undergoing 'special situations' which includes spinoffs, restructuring, mergers, bankruptcy, liquidations, rights offering, tender offers and going private transactions. Because these securities tend to have opaque or misunderstood financials and have forced selling due to institutional constraints, they tend to be mispriced as well and excellent targets for arbitrage. A further sub-set of special situation investing is focusing on securities undergoing corporate events that include Odd Lot provisions or reverse stock splits. This area provides some of the greatest risk adjusted arbitrage returns that only a small investor can take advantage of.
What are Odd Lots? Occasionally, when a company is merging or offering a tender, it will add a provision for shareholders that hold 99 shares or less. Usually this provision states that Odd-Lot holders will be have their entire holding disposed of and not be prorated like other shareholders. This offer is normally at a premium to market price to encourage investors to sell. This is done to save on investor relation costs or to reduce the amount of shareholders so the company can go private (and save on SEC filing costs). Separately, companies undergoing reverse stock splits will cash out shareholders at a premium that would have otherwise been left with fractional shares.
By investing in companies that are undergoing tender offers with Odd-Lot provisions or reverse stock splits, an investor deploying a small amount of capital can earn extremely attractive arbitrage returns. Additionally, certain brokerages (such as Interactive Brokers) do not charge any tender offer fees.
Our Value Proposition
The one substantial drawback to investing in these situations and others is the substantial investment of your time. As you will discover, combing through hundreds of pages of SEC filings to find these obscure tiny opportunities makes the payback not worth it. The required effort to do this creates a natural barrier to investment and the reason why these opportunities exist. Instead of reading through SEC filings for hours let me do the work for you and bring you complete coverage for the small price of $15 per month.
What does a subscription offer? A constantly updated listing of all going private transactions, tenders with odd lot provisions and other special situations.
Past and currently inactive special situation ideas are free to view for all visitors of the site. Active ideas are available only for subscribers. If you have any questions, you can contact me at firstname.lastname@example.org.