The curious case of the T Bancshares dividend

I have a small position in T Bancshares, Inc. (OTCMKTS:TBNC) that is being acquired for $8.0275 in cash plus a special dividend that is based on the equity of the company just before closing. The dividend is estimated to be $2.6067 (subject to adjustment based on the change in equity of TBNC in April), and since all regulatory approvals have been obtained the merger is scheduled to close next Monday on the 15th of May. What makes the situation interesting is that the market is confused whether or not the stock is currently trading ex-dividend. The record date of the dividend is May 12, 2017 with a payment date of May 15, 2017. Normally the ex-dividend date is two days before the record date, so the stock should be trading ex-dividend since Wednesday and the shares should be worth $8.0275. My broker seems to think so:

The cyan colored bar represents the amount and date of the dividend according to my broker

With the shares currently trading with a bid/ask of 10.30/10.45 there is an opportunity. Either the stock is now trading ex-dividend and it’s worth $8.0275 or it’s trading with dividend and it’s worth $10.63. The reason for the confusion is probably because the dividend will only be paid if the merger is completed, and on we can read the following:

The special dividend will only be paid in connection with the merger. FINRA will not set an “ex” date for this distribution.

If no ex-date is set for the distribution it seems to me that the stock can’t be trading ex-dividend currently, and it should still be worth $10.63. I bought a couple of additional shares at $10.40 since I believe that this is the correct interpretation of the situation, but it’s perhaps not the greatest bet. If I’m right I will make $0.23/share (plus an adjustment to the dividend that I expect to be ~$0.10/share) while if I’m wrong I will lose $2.37/share. So I better be right….


Author is long TBNC

16 thoughts on “The curious case of the T Bancshares dividend

  1. NeverLoseMoney

    I think you’re right, but I’m still pretty confused myself.

    BTW: to see the text you quoted on OTCMarkets, you have to mouse-over the line with the text “Dividend (2.6067) *”. That took me a while to find out. 🙂

    The dividend amount ($2.6067) that your broker and OTCMarkets quotes is not correct in any case, since the amount will be adjusted based on the adjusted equity just prior to closing. If it does trade ex-dividend currently, than it will be for a bit more than the $2.6067. Can a stock even go ex-dividend when it is not made clear to all market participants what the exact amount is? That seems unlikely to me.

    Whatever happens, the company messed up their communication on this. They should have put out a form 8-K and just clarify the situation. I saw some trades yesterday in the low $9 range. Those sellers are not going to be happy if the stock did not trade ex-dividend.

  2. Tom

    There is a special rule for the ex-dividend date of large special dividends. The ex date for large special dividends (I think the cutoff is 25% of the stock price) is the date after the dividend is paid.

    1. Alpha Vulture Post author

      I don’t think that rule applies in this case, in that case they could and would have set the ex-date simply one day after the payable date. I think this is an even more obscure exception in the rules…

    1. Alpha Vulture Post author

      The amount has been revised:

      Cash Amount 2.6347
      Declaration Date
      Record Date 05/12/2017 00:00:00
      Payment Date 05/15/2017 00:00:00
      Payment Method MOD
      Qualified Dividend Code No
      Record ID 40105731
      Daily List Comment Amount revised; FINRA will not set an “ex” date for this distribution


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