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Strategies & Market Trends : Mr. Pink's Picks: selected event-driven value investments -- Ignore unavailable to you. Want to Upgrade?

To: TRIIBoy who wrote (11971)	11/8/1999 12:51:00 AM
From: umbro	Read Replies (1) \| Respond to of 18998

Ok, then don't buy it. The reason it will go up though is that there are several institutions that simply cannot own BELFA or B for liquidity reasons. The market is the final arbiter. If BELFB pops 10 points on this news good for you. But since this is a forum to discuss the merits of various stocks, then why not discuss the pros/cons? I still don't see how liquidity is increased by a stock split, please explain. And as a rational person, I realize that the management controls 40% of the stock, what does it matter if you can vote or can't vote? And since it doesn't matter, why would you not get a dividend instead? That's a good question, and it can probably only be answered by reading the fine print in the company reports. Let's assume for the moment that someone has done that, and they've found some good reasons to give the BELFA a 13% premium over BELFB. The premium has been higher, as high as 34% on 3/31/99, and as low as 3.5% on 6/22/99 without the benefit of a stock split. I'd guess the spread is partly due to inefficiency in the market (it may be difficult to find A shares to short, needed arb the spread), and the varying degree of uncertainty as to what "the management" will do at a particular moment in time. A small investor might not care whether the shares are voting shares or not, but an institution might care a lot. BTW, Marketguide shows institutional ownership is only 15% for BELFA. The low institutional ownership might be considered in some circles as a positive. I own both, and I agree that the B shares will never achieve parity, but they will come close. Why would A shareholders sell their Bs? I haven't. The A owners I'm talking about are the insiders that hold 40% of the shares. Let's assume their 40% is concentrated in the A's. That means they own 80% of the voting shares. Now, by offering a dividend in the form of B shares, it lets them sell those B shares to the pulbic (assuming they can drum up the interest) at a premium over current market prices. Their percentage of the A shares doesn't change, so they retain control. But, now they've effectively monetized half their A holdings without dilution of the A shares. The B shareholders now have 2.6 mil.new shares, or 30% more in the pool of B shares. They've been effectively diluted. This monetization wasn't free for the A holders: they pay the 13% premium, or whatever it is by the time the split is effective (Dec. 1?). However, if in the meantime, the retail interest in B shares increases, that spread narrows. There is no dilution with a split remember that. And by the same argument, it doesn't increase liquidity, unless someone sells. This is not a pure split and here's why: The likely sellers are the A holders, and after they sell, the B shares have been effectively diluted. This is not necessarily bad for the B holders, if the 'split' renews interest in the company's stock, but on paper the B shares have been effectively diluted.