|Shares Out. (in M):||0||P/E|
|Market Cap (in M):||750||P/FCF|
|Net Debt (in M):||0||EBIT||0||0|
I am dealing with one of the most befuddling positions of my career, a position long CRD.A, short CRD.B. I am recommending you do the same as the only risk is purely quotational (and if you get squeezed down the line). I believe this is substantively different from the earlier short recommendation of CRD. B as this recommends a long/short position with no view toward the fundamentals of the company, and the spread has blow out even more since. I put on the position I believe with an initial spread of about $5 per share, and it has now blown out to over $8 per share. CRD.A is trading at $6.66 while CRD.B is at $14.7. They have the same economic interest in the company, but the B shares have the vote. The B shares trade about 2.5x the volume of the A shares. This relationship is absolutely crazy on any evaluation. This is WAY beyond historic spreads for the two securities. Just a few months ago the spread was about $1.
In looking at how on Earth this could happen, I have come to a couple of conclusions, each of which are temporary:
I called the Company and had a brief conversation where I asked their opinion on the spread. The person I spoke with was apologetic and said they had been getting numerous calls from irate Class A shareholders. It wouldn’t surprise me if they tried to address this in the future.
|Entry||01/02/2009 02:24 PM|
|I agree that, economically, a price difference this large makes no sense. However, the A shares carry no votes, and Jesse Crawford owns 52% of the B shares, so he controls any shareholder vote. Since Crawford owns more B shares (52%; 58% if you add Lind Crawford's 6%) than A shares (45%), what's his incentive to support a collapse of the share classes?|
|Entry||01/02/2009 09:18 PM|
|Vlaue ALWAYS wins out. I have seen it with Chipolte, and O have done BELA & B till they came togther and yars ago with GOSHA and GOSB. Always it works!|
|Subject||Theory vs. practice|
|Entry||01/03/2009 08:01 AM|
|dadande, Value may always win in theory, but the mechanics of the marketplace aren't always so kind. Short positions can get called in. There were funds that thought they couldn't lose on the VOW GR trade that are now out of business as a result. I'm not saying this isn't a good trade, just stressing that there are no absolutes in this business. zzz|
|Subject||RE: CRD Dumbfounded|
|Entry||03/30/2009 11:43 AM|
any thoughts about covering the short and going long only on the A shares, betting on the convergence will be upward biased?
|Entry||05/11/2009 03:50 PM|
thanks a lot for the great idea. i unwound the trade at a bit higher spread, but no complaints.