RE: RE: Inside Sells of 165000 shares unreal When the market is dumb enough to trade the parent company at a discount to the value of the shares that it owns of its subsidiary, why wouldn't you take advantage of that.
They make ~$2.85/sh on the spread between the 2 companies for every share they swap - assuming PBG's oil assets are worthless (1.08*14.60 + 0.95/sh in cash - $13.92). It would be a breach of their fiduciary duty NOT to make the swap.
This negative stub valuation has happened before - for example with 3Com and Palm and was studied by Owen Lamont and Richard Thaler at the University of Chicago. https://www.chicagobooth.edu/capideas/win02/market.html
They believe the issue is due to the inability to short and irrational investors buying the subsidary. I don't think inability to short is the issue here - my view is that people are irrationally focused on the dividend of Petrobakken and overlook the fact that it is cheaper to buy Petrobank.
Their quote: ""Given that arbitrage cannot correct the mispricing, why would anyone buy the overpriced security?" write Lamont and Thaler. One plausible explanation is that the type of investor buying the overpriced stock is ignorant about the options market and unaware of the cheaper alternative. In looking at who buys the expensive shares and how long they hold them, Lamont and Thaler find numerous patterns consistent with irrational investors."