DEMBF: DE Master Blenders (arbitrage opportunity)

[krazeenyc]

De Master Blenders was spun off from Sara Lee in the summer of 2012 (I owned Sara Lee as an event driven play -- I ended up keeping DEMBF and selling Hillshire... anyways).  Earlier this year Joh A Beckinser bought out DE Masters Blenders for 12.50 Euro ($17.25) per share. They structured the buy out as a voluntary tender -- I, of course, tendered my shares. In late September they announced that they tendered 95% of the shares and in late October they delisted in the Amsterdam exchange. The rest of the shares would be "squeezed out" within 5-8 months at the same purchase price.  (The squeeze out can be much much faster process -- sometimes happening in under 2-3 months)

 

To my surprise, on December 23rd, I noticed that the shares started trading again -- at $15.05! I've basically been buying as many shares as I can get my hands on -- DEMBF is very thinly traded at this point. I assume that anyone who is selling their shares probably didn't realize they could tender the shares for $17+ (or maybe some market maker went on vacation and forgot to sell their shares lol).  Anyways I've been buying shares between $15.00 and $15.35 and am probably responsible for probably 80-90% of the volume -- so I don't know how valuable this information will be to people. I've only been able to buy DEMBF at TD Ameritrade not at any of my other brokers -- odd.

 

Obviously there is Euro currency risk.

 

I contemplated not sharing this idea since any interest at all in the name will impact my ability to buy more, but for now I've bought enough and maybe some others might find this idea helpful to them.

[jay21]

So basically you will get 12.5 euro a share in the next year (most likely less than 9 months and as early as 2-3 months)?

 

Seems like a great find, nice job!

[xxx1313]

Nice idea, thank you. I was not able to find the Offer Memorandum. Can you plz share it (attachment), if available?

[BG2008]

Where did it say that they will be offering 12.50 euros for the last 5%?  I read up on Germany Squeeze outs this morning, and they state that the minimum price has to be the average price in last 3 months.  Did Joh A Beckinser came out and stated that they will be acquiring the last 5%?  Any sorts of documents or press release associated with it? 

 

Thanks for the idea. 

[jay21]

Where did it say that they will be offering 12.50 euros for the last 5%?  I read up on Germany Squeeze outs this morning, and they state that the minimum price has to be the average price in last 3 months.  Did Joh A Beckinser came out and stated that they will be acquiring the last 5%?  Any sorts of documents or press release associated with it? 

 

Thanks for the idea.

 

Under Dutch civil law, the Squeeze Out Procedure is a judicially supervised proceeding held before the Enterprise Chamber of the Amsterdam Court of Appeal (the “Enterprise Chamber”). Pursuant to this proceeding, once a shareholder holds at least 95% of the issued share capital of a Dutch company, as Oak Leaf B.V. currently does of DEMB, it can as a matter of right squeeze out the remaining minority shareholders. The majority shareholder seeking to squeeze out the remaining shareholders initiates the proceeding and proposes the squeeze out price, which is typically the price equal to the public offer price. Oak Leaf B.V. has already undertaken to propose the same price pursuant to the Squeeze Out Procedure as it paid pursuant to the Tender Offer. The Enterprise Chamber has the authority to award the price proposed by Oak Leaf B.V. (which is the price already accepted by holders of more than 95% of DEMB’s shares) or to appoint one or more experts to advise the Enterprise Chamber on the fairness of the squeeze out price. Any experts appointed for the Squeeze Out Procedure have the right to request information from DEMB to determine whether the proposed squeeze out price is fair. Therefore, the Enterprise Chamber and by extension minority shareholders are not dependent upon the publication of reports required under Section 13(a) of the Exchange Act in order to obtain the benefit of the Squeeze Out Procedure.

 

http://www.secinfo.com/d14D5a.xCGcb.htm

[krazeenyc]

Where did it say that they will be offering 12.50 euros for the last 5%?  I read up on Germany Squeeze outs this morning, and they state that the minimum price has to be the average price in last 3 months.  Did Joh A Beckinser came out and stated that they will be acquiring the last 5%?  Any sorts of documents or press release associated with it? 

 

Thanks for the idea.

 

The Squeeze Out is based on Netherland's law. Joh A Beckinser has already stated that the squeeze out price is 12.50 EUR. For example, after Canon finally got above 95% of Oce they initiated the squeeze out in 1 month and closed it 7 days later (this is obviously overly optimistic).

 

SEC.GOV CIK#1543415 for more info.

 

Here's the thing.. I don't know how many shares are going to made available (i.e. how many people in the US still hold DEMBF and want to dump it in quantities that are meaningful).

[xxx1313]

Thanks for the link, krazeenyc.

 

However, it seems that the stock cannot be traded with my two European Brokers (OTC US can be difficult). :-( This could be to some extent be a reason for the existence this arbitrage opportunity.

[krazeenyc]

Thanks for the link, krazeenyc.

 

However, it seems that the stock cannot be traded with my two European Brokers (OTC US can be difficult). :-( This could be to some extent be a reason for the existence this arbitrage opportunity.

 

Of course this is the reason. I can ONLY buy it at TDAmeritrade -- and there is no bid/ask shown. I personally think the risk adjusted return is phenomenal.  There is no liquidity issue (when selling)  since you will be paid via the squeeze out. Question is can you acquire a decent position.

[Guest wellmont]

the ask on tda is $16.50. 0 shares offered.

[krazeenyc]

the ask on tda is $16.50. 0 shares offered.

 

I think that's an old quote from god knows when. Like some other grey market issues -- there is a bid and ask but they are not published.

[matjone]

Thanks for this idea, krazeenyc.  I remember seeing them during the spin-off and recognizing their Pilao brand, one of my favorites.

 

Out of curiosity, what other brokers have you tried?

 

If I'm reading it right the 12.50 price is reduced by any dividends that were paid after the tender offer this summer, correct?  Should there be any reduction for this?

[krazeenyc]

Thanks for this idea, krazeenyc.  I remember seeing them during the spin-off and recognizing their Pilao brand, one of my favorites.

 

Out of curiosity, what other brokers have you tried?

 

If I'm reading it right the 12.50 price is reduced by any dividends that were paid after the tender offer this summer, correct?  Should there be any reduction for this?

 

Your welcome. I definitely thought twice about posting the idea, because if I decided I wanted to buy more I would be negatively impacted.  But in the spirit of the holidays :D. There were never any dividends in relation to this deal (and DEMBF never issued dividends other than the 1 $3 special dividend in relation to the SLE spin off). (Just realized this arb is even better for the Europeans on this site who deal in Euros)

 

IB and Fidelity, and Schwab gave me an error message and a number to call (I never did).

 

[matjone]

ask is up to 16 now according to my broker.  assuming it goes the maximum 9 months from the date of the tender which is how I figure these things, it only looks like a decent return from here.

[BG2008]

Thanks for this idea, krazeenyc.  I remember seeing them during the spin-off and recognizing their Pilao brand, one of my favorites.

 

Out of curiosity, what other brokers have you tried?

 

If I'm reading it right the 12.50 price is reduced by any dividends that were paid after the tender offer this summer, correct?  Should there be any reduction for this?

 

Matjone,

 

Can you reference the document that you're looking at regarding the dividends? 

 

Thanks

[matjone]

page 5

 

http://www.sec.gov/Archives/edgar/data/1543415/000110465913050281/a13-14891_1ex99da1b.htm

[krazeenyc]

page 5

 

http://www.sec.gov/Archives/edgar/data/1543415/000110465913050281/a13-14891_1ex99da1b.htm

 

Right, it's saying if DE Master Blenders shareholders were paid a dividend prior to receiving 12.50 EUR , they would reduce the 12.50 EUR price by whatever the dividend was. We were not issued a dividend. All of us who tendered received the full 12.50 EUR per share.

 

 

[matjone]

If you don't mind me asking, are you still seeing 16 as the lowest offer today?

 

I am wondering if I should open a TDA account

[APG12]

I'm not sure about your broker but the bid/ask shown at Schwab is definitely not correct.

 

Does anyone have a sense of the risk that the statutory buyout isn't completed? It seems all but inevitable at this point but I don't have any experience with statutory buyouts. I wonder how many fail to be completed after all conditions have been met. I assume very few. Thanks for this awesome idea!

[BG2008]

FYI,

 

Shares are also available on Etrade and Scottrade.

 

 

[BG2008]

Euro risk can be easily hedged out by shorting the Euro through IB. Current exchange rate is 1.3601 USD per EUR which implies a $17.00 USD for the DEMBF shares.  Cost of trade is only $2 for about ~$20k of Euro

[katikies]

I share with you the answers I received today from someone at Georgeson (a company helping them with the buyout process). 

 

Regards!

 

---

 

Could you please tell me what is to be expected? 

 

Currently more than 95% of the shares have been tendered under the offer and the Offeror JAB has initiated a statutory buy-out procedure, which has to be ratified by the Dutch courts. Currently the Offeror is awaiting the court ruling, before it can commence the buyout procedure.

 

 

Will these shares be exchanged for 12.50 Euros?

If so, when?

 

The buyout price will be at the same price as the offer price, The Offeror is offering to pay EUR 12.50 (twelve euro and fifty euro cents) cum dividend per Share to you in cash (less any applicable withholding taxes and without interest), subject to the terms and conditions set out in the Offer Memorandum. It will be paid after the buy-out procedure has been ratified by the Dutch courts and it has been finalised.

 

Will there be any tax implications?

Will there be any withholding on the amount paid?

 

Dutch tax consequences

Should a Statutory Buy-out be implemented, no Dutch dividend withholding tax (dividendbelasting) is due upon a disposal of the Shares under the Statutory Buy-out. The Dutch income tax consequences of the Statutory Buy-Out are in principle the same as the Dutch income tax consequences of the Offer.

 

Reference is made to Section 10.1.5 (Statutory Buy-out).

 

In the event the Post-Closing Merger and Liquidation is effected, on the basis of the Tax Ruling issued by the Dutch tax authorities, generally the amount of Dutch dividend withholding tax in respect of the Liquidation Distribution per New Oak Share would be approximately EUR 0.436 (15% of EUR 2.909, being the excess of the Liquidation distribution per New Oak Share in the amount of the Offer Price of EUR 12.50 over the average paid-in capital as recognized for Dutch dividend withholding tax purposes of EUR 9.591 per New Oak Share), which is approximately 3.5% of the Offer Price. The Dutch income tax consequences of the Post-Closing Merger and Liquidation are in principle the same as the Dutch income tax consequences of the Offer.

 

Reference is made to Section 10.1.6 (Post-Closing Merger and Liquidation).

 

US Federal tax consequences

For U.S. federal income tax purposes, the Statutory Buy-Out or Post-Closing Merger and Liquidation should generally be a taxable transaction with respect to a Shareholder who receives cash in exchange for all of its Shares in the same manner as the Offer. In the case of the Post-Closing Merger and Liquidation, it is unclear whether any foreign tax credits may be available to any Shareholder subject to Dutch withholding tax imposed on the liquidation distribution.

 

The U.S. federal income tax consequences of any other Post-Closing Restructuring Measure will depend on the exact manner in which the transaction is carried out, which has not yet been determined. However, if a Shareholder receives cash in exchange for all of the Shares that it holds, such transaction generally should be taxable in the same manner as a sale of Shares under the Offer.

 

Reference is made to Section 10.2.2(B) (Statutory Buy-out, Legal Merger or other Post-Closing Restructuring Measures).

 

 

 

 

For each Share, the Offeror offers a consideration of EUR 12.50 (twelve euro and fifty euro cents) in cash cum dividend (the "Offer Price").

 

 

[matjone]

doesn't look that good if you have to pay a tax and you don't get a credit

[krazeenyc]

doesn't look that good if you have to pay a tax and you don't get a credit

 

Ok I've told people in PMs.

 

1) I did not pay a tax for the original buyout/tender offer.

 

2) There should be no tax withheld for the squeeze out. It's pretty black and white. In the past I've not had $$ withheld for squeeze outs. But I am not a tax lawyer and THIS IS NOT me advising anything.

 

[matjone]

Good to know, thanks again for the idea.

[krazeenyc]

http://www.globenewswire.com/news-release/2014/04/08/625449/10075928/en/D-E-MASTER-BLENDERS-1753-Statutory-Buy-Out-To-Be-Concluded.html

 

Less than 5 months not bad.