No. of Recommendations: 2
I looked into this last week, and was all set on a long/short combination trade alongside SIRI stock. I'm sure you know LSXMK is set up as a SIRI tracking stock, and there's an upcoming combination of the two, and that they'll trade under the SIRI ticker. Current SIRI owners get 1 share for each SIRI share they own now, while LSXMK owners get 8.4 shares of the SIRI for each share they own now. There's some rolling of LSXMK debt into new SIRI that's supposed to be resolved by LSXMK management giving up some shares (an earlier deal called for LSXMK management paying SIRI shareholders a special dividend to account for the extra debt, but it was changed). Anyway, once they're combined, they should trade somewhere between LSXMK's valuation and SIRI's valuation.
My long/short trade fell apart when I received notice that my short leg (the current SIRI stock) is a "hard to borrow stock". This means it'd be subject to additional borrowing charges. So it seems there's not enough SIRI stock to go around to close the gap between the two stocks. So there's a few questions:
1) Will SIRI fall to meet LSXMK's price, or will LSXMK rise to meet SIRI's price. The latter is Berkshire's bet, but will it be a long term position, or just an arbitrage play?
2) So, Is SIRI trading high because there just aren't enough shares out there, as evidenced by their hard to borrow status? If so, maybe new SIRI will decrease to meet LSXMK instead of the other way around.
3)What's the timing? I got burned on ATVI because I had summer options when they were supposed to close on the sale to Microsoft in the spring. When that didn't happen until the fall I lost out.
