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:
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 OTCMarkets.com 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