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Dual-Class Arbitrage Idea 4 – Heico

October 12, 2011 | About:
Dual-class arbitrage trading is a simple three-step strategy.

1) Identify two publicly traded stocks of the same company at different prices.

2) Short the high-priced shares (X) and buy the low-priced shares (Y). Pocket X-Y.

3) Sell Y and buy X when the price of X and Y are equal.

Heico Corp. fits the bill. The company produces aircraft-engine parts such as combustion chambers, heatshields, landing gear, and hydraulics. Heico also builds equipment used in ground-support operations and provides repair and maintenance services.

My broker, IB, indicates there’s ample liquidity to short at least 1,000 shares today.

Heico has 20 million publicly traded common shares and 13 million publicly traded A-shares. All have identical cash-flow rights.

HEICO Class A Common Stock (HEI.A) and HEICO Common Stock (HEI) are virtually identical in all respects, except for voting. HEICO Class A Common Stock carries one-tenth of a vote per share, while HEICO Common Stock carries 1 vote per share.

Schermafbeelding%202011-10-13%20om%2008.

The historical spread of HEI versus HEI.A:

Schermafbeelding%202011-10-12%20om%2019.

Schermafbeelding%202011-10-12%20om%2019.

Disclosure: This is not a recommendation to buy, sell or short anything. I had no position in any of the stocks mentioned at the time of writing.

-EDIT- 27 oct 2011

Long HEI.A & short HEI

Idea 1 - Lennar: http://www.gurufocus.com/forum/read.php?2,147502,147637#msg-147637

Idea 2 - Hubbell: http://www.gurufocus.com/news/147753/dualclass-arbitrage-idea-2--hubbell

Idea 3 - Viacom: http://www.gurufocus.com/news/147826/dualclass-arbitrage-idea-3--viacom

About the author:

batbeer2
I define intrinsic value as the price I would gladly pay to own the business outright. With current management in place. For most stocks, that value is 0. As of September 2012, I'm the author of the monthly Buffett-Munger Best Bargains Newsletter. I can be reached at fvandenbroek AT gurufocus DOT com

Visit batbeer2's Website


Rating: 3.3/5 (11 votes)

Comments

Adib Motiwala
Adib Motiwala - 2 years ago
Very interesting. The spread has gone from one extreme in 2010 to the other extreme. What could be reason for this?

Could you also mention volume for both classes in future articles.

Some thing like

Class Price Vote per share Volume daily

A

B

thanks

Adib
batbeer2
Batbeer2 premium member - 2 years ago
Hi Adib

>> What could be the reason for this ?

- Some index funds have HEI but don't buy HEI.A

- HEI has more volume. Stock traders prefer that.

- Maybe there's a general expectation there's a hostile takeover in the works and people want the votes.

I really don't know.

>> Could you also mention volume for both classes in future articles.

Yes

Please leave your comment:


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