How to play the "traditional" RS Arb...
-Company XXXX announces (through a PR or a company filing) that they are about to do a 1 for XXX reverse split (usually through what is called a "Going Private Transaction").
-Company XXXX goes through the sometimes long process of deciding what price to buy the fractional shares (post RS) by hiring an outside financial firm to justify a price.
-The company then usually releases another PR or filing with the updated information including the justification of the price they will pay to fractional shareholders.
-Typically it takes 3-6 months to get their things in order before they announce the shareholder's meeting to bring the matter to a vote. During this time you will see amendments to the proxy in which they could change many different things (date of meeting, amount of the reverse split, the price to be paid, etc.)
-When the company announces the date for the shareholder meeting, this is the time to get in, the closer to meeting date the better. I typically like to get at least a 10% return on my money before I will invest into the Arb play.
-The RS is typically approved (because a majority of the shares are held by insiders), and your broker will take the shares from your account within 3-5 business days.
-Your account will hold 0 shares of the company (which typically changes the ticker symbol once the RS goes into place). The process typically takes 1-2 months for the transfer agent to pay out the cash to shareholders. (In some cases like MHG, it takes much longer - it's been 6 months at the time of the this post.)
