Risk Arbitrage

Appendix A

The following are sample reorganization proposals for which the parities have been calculated. The calculations were predicated on interest rate structures and transaction costs that existed at the time the particular proposals were promulgated; accordingly, the resulting calculations would prove to be vastly different under current fee structures and money rates.

The “spread” or potential profit is determined along with the parity for each case. This is figured on a gross basis before taxes. From this figure one would normally make adjustments for such transaction factors as brokerage, state and transfer taxes, long and short dividends, and for private investors, commissions.

Prices of all securities involved in each case were taken on the same day.

A New Issue of Convertible Preferred with Two Simultaneous Conversion Rates

Terms: 1 Landis Machine ($115) = $90 market value of Teledyne $3.50 convertible preferred stock ($226½) + ½ share of a new $6 preferred stock, each share of which would be convertible at any time into 0.67 Teledyne common ($113⅝), but for 30 days after the closing date would be convertible into $100 market value of Teledyne common, such market value to be determined by the closing price of Teledyne common on the closing date.

 

Parity: Each part of the package must be dealt with separately. Taking first the $3.50 preferred, which is convertible into two shares of Teledyne common, we note that this preferred trades at a discount to its conversion ...