BAM's quote has lately been rising faster than BN, and already BN was the more discounted of the two, and has recently become even more so.

The market cap of BAM appears to be $14.4 billion today based on the latest quote of BN of $35.06.*

BN's market cap is $57.5, which includes the other 75% of BAM (3 * 14.4 = $43 billion).

This prices the remainder of BN (which includes all their directly held commercial property, and their ownership of BBU, BE, BIP as the big three) at $57.5 - 3 * $14.4 = $14.3 billion. Call it the "Trading value of BN without BAM".

The trading value of BN without BAM should be closer to the IFRS value of $34 billion. The quote of BAM is treating the value of "BN without BAM" as $34 billion, which is a 58% discount to IFRS.

I do not see any reason, other than short-term speculation (or the dividend income being necessary) to hold BAM now, given that you can own the same BAM company (plus the extra business) through the parent BN at a significant discount.

Another way to look at the arbitrage opportunity is to consider the converse - what discount on BAM shares are you getting by owning BAM through BN? For the calculation you could assuming the value of BN without BAM is worth IFRS. If that was so, then you are getting the 25% ownership of BAM for (57B - 34B) / 3 = $7.6 billion via BN, instead of paying $14.4 billion when purchasing via BAM. (NB: The (57B - 34B) above represents the 75% ownership of BN, so I have divided by 3 to represent the 25% ownership).

In both cases, it seems to make sense to sell BAM today and purchase BN shares. I have not done this myself quite yet.

- Manlobbi

* I believe this $14.4 billion market cap is the value of the 25% publicly available float, but please correct me otherwise. The earnings call was yesterday and they are reporting BAM's financials for BAM as a whole (100% ownership) rather than the 25% ownership that the BAM public float represents.