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Tuesday, October 10, 2006

Possible Reverse Split Arbitrage Play

I was searching the SEC filings database and came across this possible reverse split arbitrage play: Dolce Ventures, Inc. This stock trades on the "pink sheets" under the symbol DLCV.

The company will be undergoing a 304.44 for 1 reverse split with shareholders owning less than 15,222 shares being unaffected by split. For more details, read the company's SEC filing. Pertinent details are in the section titled "The Reverse Split" (surprisingly enough). Here is an excerpt:

At the time of the Reverse Split, holders of outstanding shares of Common Stock will receive one share of post-Reverse Split Common Stock for each 304.44 shares of pre-Reverse Split Common Stock held as of the close of business on the date the Amendment is filed. No fractional shares of Common Stock will be issued in connection with the Reverse Split. All fractional share amounts resulting from the Reverse Split will be rounded up to the next whole new share. In connection with the Reverse Split, the Company's Board of Directors, in its sole discretion, may provide special treatment to shareholders to preserve round lot holders (i.e., holders owning at least 100 shares) after the Reverse Split. In the event the Board determines to provide such special treatment, shareholders holding 30,444 or fewer shares of Common Stock, but at least 15,222 shares of Common Stock, will receive 100 shares of Common Stock after the Reverse Split, and persons holding less than 15,222 shares of Common Stock would not be affected. The terms and conditions of special treatment afforded to the Company's shareholders to preserve round lot shareholders, if any, including the record dates for determining which shareholders may be eligible for such special treatment, will be established in the discretion of the Board of Directors.

The last quote I can see shows a price of $0.013 per share. Now for the bad news. The split should take effect 20 days after the date of mailing the notice to the shareholder's of record at the close of business 10/16/06. You need three days for a stock trade to "settle," so you must buy any shares today (Oct. 11) if you want to be a shareholder of record in time. The company will also be changing its name on this date, and most likely, will change its stock symbol too. I do not know what the new symbol will be, but the new name will be Sino Gas International Holdings, Inc.

As always, do your own due diligence before investing. This is neither financial advice nor a solicitation to buy or sell any security. Any number of things can happen with these plays, so I recommend only investing what you are comfortable losing.

27 comments:

Colin Meadows said...

I believe I read some of your previous posts regarding the reverse arbitrage strategy but I need some clarification.

Does one have to own at least 15,222 shares to benefit from this reverse split?

Also, do you have any online references outside of your own blog that describes the process?

If you have written about all of this before then just let me know and I'll delve into your previous posts.

Thanks

Shaun said...

No. In fact, you DON'T want to own 15,222 shares. The whole point of this is to own few enough shares so that you are NOT affected by the split. I have written about this a couple times. My blog entry before this one has a link to my previous posts about it. Those posts, in turn, link to the Art Of Money blog, which has a description of this as well. That's where I learned about it.

Anonymous said...

tell me whats wrong with my math.

so I buy 15000 shares at $.013. that equals $200

then after the reverse split the price goes to .013 X 340 = $4.42.

So I own 15000 shares of the stock worth $4.42 thats $70,000

Shaun said...

There is nothing wrong with your math (except the split is 1 for 304.44, not 1 for 340, like you wrote). However, personally, I would not purchase that much? Why? Because the special treatment is at the discretion of the Board Of Director and they have already said they will not issue fractional shares, but will round up to the next whole share. 15,000 / 304.44 = 49.3, which rounds up to 50, which, based on the 15,222 number, is the smallest lot they will issue. So you may end up having your 15,000 shares affected by the split anyway. I want to stay way under the limit and I personally only bought 3,500 shares and spread those across four different accounts :-) Also, I wouldn't expect the post-split stock price to be near 304.44 times the pre-split price. Theoretically, the post-split price should be around $3.95. In reality, I'm expecting it to be around $1.50 to $2.00.

Gualberto said...

Hey Shaun,

Thanks for the heads up! I'm gonna try and buy some of this tomorrow at the open. The deal sounds too good to be true, but it definitely has the right risk/reward ratio.

Gualberto

Anonymous said...

gualberto, hate to be a party stopper but I think you would have had to buy it today if I understood correctly

savvy saver said...

Shaun - looks like I didn't read this in time to buy any stock, but please keep us updated on the outcome!

Dan said...

Doh!

Caught sleeping again. I will be following this one.

I think I am going to program a daily search of the SEC database and have it email my inbox so I dont miss these anymore. Easiest money ever.

Dan

Anonymous said...

I don't get the part about where you said to buy on Oct 11. The filing says:
"...including the record dates for determining which shareholders may be eligible for such special treatment, will be established in the discretion of the Board of Directors."

Can someone explain about the date?

Shaun said...

Yes, the filing says the Board of Director's can determine the date for who is affected by the split. However, from what I have seen, this is more or a boilerplate legal notice. In reality, what usually happens is the shareholders affected are the ones who get mailed the notice about it. If you read the entire filing, you'll see it states the people who will get mailed the notice are those people who are shareholders at COB 10/16/06.

Sometimes it's tough to separate the boilerplate legal stuff from what will actually happen. For instance, the filing also says the Board MAY determine to offer special treatment to small shareholders and that the terms and conditions of any treatment will be determined at the discretion of the Board, so a strict reading of the filing will imply that the special treatment may not even happen and if it does, there is no guarrantee it will be implemented as described here. Basically, the filing gives the Board legal wiggle room to do whatever they want, although 99% of the time, they do what the filing says.

Shaun said...

It looks like things are moving forward as planned. The company filed a final version of their 14C - the informational statement filed with the SEC that I linked to earlier. This final version fills in some dates that were left blank. Notably, the "official" 14C filing date is Oct. 18. Everything else looks the same. They still won't do the split until 20 days after Oct. 16, the 1 for 304.44 split ratio is still there and the special provisions for owners of less than 15,222 shares are still in place. The only thing I can tell they added was a graphic showing the corporate structure. If you want to see the filing, you can find it at http://edgar.sec.gov/Archives/edgar/data/1326364/000114420406042912/v055152_def14c.htm

Anonymous said...

What's your take on this one:
http://www.sec.gov/Archives/edgar/data/1119721/000114420406043056/v055246_pre14c.htm

The main body of the filing addresses the special treatment of persons holding less than 8,255 shares, but Exhibits A and B lack this language. Does one supersede the other?

Shaun said...

Interesting. I wouldn't worry about Exhibits A and B lacking mention of special treatment. Exhibits A and B state that the amendment to the articles of incorporation (to enact the reverse split) "...be in such form as such officers, in their sole discretion, shall determine to be necessary, appropriate or desirable, any such determination to be conclusively evidenced by the execution, delivery and filing by such officers of the Amendment..." To me, this means the reverse split can be done by the company officers as they see fit.

From how I see it, Exhibits A and B are the actual items that the Board voted on. As I mentioned, they give the company officers leeway in executing the split as they see fit. The main document, the Schedule 14C, is the information statement explaining in more detail what was voted on and how the voted-on actions will be implemented - the timing of it, the results, etc.

As always, I am not a registered broker and this is not an offer to buy or sell any securities. Perform your own due diligence.

Anonymous said...

so whats the timeline for USPO.ob. ? I see that they keep making a big deal about oct. 20. ".........As of October 20, 2006, there were approximately 339 holders of record of the Common Stock.

......"


I think Im going to jump in in the morn

Anonymous said...

Shaun, Keep in mind that USBO's filing is "preliminary" so there will have to be a definitive filing before all this can occur. There is no rush to buy until you see the definitive filing, same as with DLCV except DLCV HAS made its definitive filing.
Does anyone notice a similarity between the wording in these 2 companies filings? Notice that someone with the same last name Passalaqua is a part of both companies and they are both in the same business- pay phones, and both are sellig out to asians.

I am wondering if the wording "persons holding less than 8,255 shares of Common Stock would not be affected" means that under 8255 WOULD BE SPLIT and not be rounded up to 100?

Shaun said...

For the timing, come on guys..Do I have to do everything for you? Read the filing. It says the split will be effective 20 days after the information letter is sent to shareholders. The split will affect those stockholders of record as of the close of business on the date the amendment is filed. This is typically the same day or one day before the finalized 14C is filed with the SEC. Add on the standard three days for a trade to settle and you've got the date you need to purchase by. Bottom line is there is no exact date given in this case, but these things don't sit around and the company wants to move forward with it, so assume time is of the essence. I would ignore the Oct. 20 date. That's just the date they initially filed the 14C and hence, they are giving the number of shareholders as of the filing.

Yes, it is a preliminary filing. Personally, I believe by the time the finalized filing has been made, it is too late, but do as you see fit. It not like you will be investing thousands of dollars here. If you only invest what you are willing to lose, you won't have a problem if it never happens.

The whole reverse split merger thing is a business. Many shell companies are created for the sole purpose of being bought by another company. Hence, the similarity of filings and the same people involved. It's their business.

I believe you are wrong about people with less than 8,255 shares being split but not rounded up. The whole point of special treatment is to preserve "round" lots - persons with 100 shares or more. If they split holders of less than 8,255, they will have to issue lots of less than 50 shares, which defeats the whole point of special treatment.

Anonymous said...

Shaun, No one is asking you the exact date when this will become effective, because that will be up to the company to decide. In any case it cannot be before 20 days after the def proxy was accepted by the sec. The def was accepted for dolcv on 10-19, so it can't become effective before Wed 11-8.
Just FYI.I realize you have a steep learning curve ahead of you here!

Shaun said...

Actually, I think the Anonymous comment at 10/24/06 7:25 PM WAS asking for the exact date. Given that I did provide a date you had to purchase shares by for the DLCV split, I think it was a valid question, although one that can be answered by a close reading the filing. As for the 20 day thing, I know that and I said that. It's not me that has the steep learning curve.

Anonymous said...

Im the anon that posted the question on the timeline.

For the record I did read the filing and no, I was not asking for an exact date to purchase by.

Why would I ask for the exact date I need to purchase by if in the same post I state that I will be purchasing in the morning?

I guess I missed the part that stated the information statements are being sent out on 10/31. Im sorry so kill me. they state the date 10 paragraphs before they get to the heart of the details of the split.Unless your familiar with the lingo your mind would not flag that first mention of "information statement".

For you who has done this a few times everything may be obvious. Your familiar with the diction and wording.

I wasnt asking to be spoon fed. I had already planned to purchase. I just missed the line that stated when the information statement went out.

I love your blog. Keep doing it.

Anonymous said...

Shaun,

The main post on your blog has the followwing misleading statement:

"Now for the bad news. The split should take effect 20 days after the date of mailing the notice to the shareholder's of record at the close of business 10/16/06. You need three days for a stock trade to "settle," so you must buy any shares today (Oct. 11) if you want to be a shareholder of record in time. The company will also be changing its name on this date, and most likely, will change its stock symbol too. I do not know what the new symbol will be, but the new name will be Sino Gas International Holdings, Inc."

Please learn that there is a HUGE difference between a definitive filing and a preliminary filing.
Any dates in the preliminary are as the word states "preliminary".
All I ask is that you please know which filing it is you are talking about and don't get in a hurry to post deadline dates that some may take at face value, as you obviously did yourself!!

AND FOR THOSE WHO DIDN"T BUY BY OCT.11, THERE IS STILL TIME TO BUY!!


Just helping Shaun learn!!

Shaun said...

A definitive filing was made on Oct. 18. The dates are the same. It is too late to buy.

Anonymous said...

Thanks for all the info Shaun!

nigglabiggla said...

Too late to buy? So the folks who buy today for .1135, what happens to them?Ithas not yet become effective, that is for sure!!

niggalabiggala said...

Dis is der reel deal nookas.
ERRYBODDYY get a hunnad share FREI.

http://www.sec.gov/Archives/edgar/data/1045390/000107878206000902/freedomdef14c.htm


NIGGALABIGGLA OUT--

Anonymous said...

it doesnt seem to be worth it.
2.5 to 1 reverse split on less than 100 shares of 5 cent stock. That doesnt even clear my commission cost. Unless I understand this wrong, I will pass on this one.

Anonymous said...

This has nothing to do with our deals but I found their take on reverse mergers and reverse splits to be interesting.

they call it "financial suicide" for the company.
LOL

http://www.going-global.com/equity/finance-glossary.html

Anonymous said...

so, we're all waiting on our fresh shares? I got the real reverse split ones, but no rounded ones yet

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