i just undid my PCO buy (sold my PCO, bought back VLO), based on the call. there were a number of confused-sounding Q's on how the PCO shares will be handled (i myself got more confused just listening to them and to the answers), and it appears that PCO shareholders could be forced to take cash ($72 and change) for either 50% or some other "pro rata" percentage of their shares. since the deal isn't expected to close till the end of the year, and since PCO is already at $71 and change, i don't see the upside to holding PCO here.
if VLO goes to $150 by December, where i think it belongs, who is going to want less than $73 cash for PCO? everybody would subscribe for VLO shares. my understanding is that VLO would still pay for half the transaction in cash (at less than $73 per PCO share), so if 100% of PCO shares were subscribed to receive VLO shares, everybody would get stuck with 50% cash (perhaps my understanding is incorrect, but that's how i see it). so PCO would seem to have only half the upside here compared to VLO (plus the arb spread, but only on 50%). this should make for some interesting arb action, and if i am not mistaken the intraday spread is already starting to widen. |
