Global Value Investing

[throwerw]

PBG/PBN spread really blowing out today. News of the DRIP has attracted investors into PBN. Nobody seems to care that owning PBG is basically the same thing but way better. I won't say this is as big as the spread gets, because I've seen some pretty extreme arbitrage situations, but I will say with confidence that if you put the trade on today, you will not lose money two years from now. If you put the trade on last week, you will not lose money two years from now, even though you are losing in the short run.

Short 103 shares PBN $1214
Long 100 share PBG ($899)
2 years dividend paid ($198)

PBN shares are spun out in 2 years. You get:

$315 - From close in price gap
$99 - new PBN shares cost basis
$500 - 100 shares in HBU, Archon (estimate, 5x CF)

the trade pays for itself, because you get cash upfront to short PBN.