The Rising Influence of Rising Affluence

[DewDiligence]

HNZ update—The stock was trading within a few pennies of the $72.50 buyout price until last Thursday, when it went ex-dividend and hence declined by roughly the amount of the $0.515 quarterly dividend.

Whether there will be another dividend payment before the buyout closes is in doubt. HNZ’s initial SEC filings about the buyout said that the closing was expected in 3Q13 (in which case a second 2013 dividend would surely be paid); however, HNZ’s latest SEC filings say the closing will be in 3Q13 or late in 2Q13.

Hence, the discount of the current market price ($71.99) to the $72.50 buyout price is not your typical arb spread based on risk that the deal will fall through, but rather reflects uncertainty that the 2Q13 dividend of $0.515 will be paid. If it were certain that the 2Q13 dividend would be paid, HNZ would now be trading at or slightly above the buyout price. In effect, HNZ shares have become a proxy for an almost-risk-free bond where the interest rate is either 3% or 6% depending on whether the 2Q13 dividend gets paid.