A recent Seeking Alpha article painted a rosy picture for big returns on the ADR units of AFP Provida SA. (PVD). These are thinly traded units with a very large bid/ask spread. The article gives the impression that there is a pending tender offer for all American ADR units of PVD as well as the Chilean shares of AFP Provida SA. which trade publicly on the Chilean exchange and those shares owned by Banco Bilbao Vizcaya Argentaria SA. (BBVA).
The author puts forward the thesis that:
Simply buying the shares and tendering them will generate a 4.52% absolute return if the tender offer is consummated by the end of October. If the offer is closed in November or December, shareholders should receive an additional interim dividend reflecting the earnings in the first half of 2013, which will boost the absolute return to 7.78%. In the very unlikely case that the acquirer of the company, Metlife, decides to walk away from the deal, the company's fair value calculated from EVA method implies that there is little to lose.
That article goes on to discuss a business summary of AFP Provida and goes on to state ...
Metlife is conducting a tender offer for up to 100% of ADS at $92.196 per share. AFP-Provida plans to pay shareholders another $2.45 per ADS of excess cash before the closing of the deal.
I read this report with interest since I was a holder of the PVD shares prior to and at the time of the MetLife purchase of the BBVA shares in February 2013. At the time of that announcement on February 1st, the PVD shares tumbled from their prior week highs of $111 to near $105 by the close of that week. Since that time, the shares have continued down to a low of $86.63 on June 24th of this year, including downward price realignments reflecting the full decrease offsetting the 2 dividends paid in May and June.
With a daily average trading volume of around 25,000 units and a bid/ask spread of almost 10% on the current $91.34 bid and $99.98 ask, any investor should proceed with caution when they explore opening a position in these shares. Not only has run-up of the past month, since July 15th, taken the glitter off the potential profits suggested in the SA article, the high end of the bid/ask range is now above any forecast profits for traders at all based on the merger or high end valuation presented in the article ($111.80 minus the cash payouts between October 31, 2013 and December 31, 2013).
The focus of the article on the tender offer caught my attention due to its distance in time from the February 1st announcement. There has been no new news or discussion of this buyout since the first week of February. A call to my broker, a visit to the SEC site, and a call to the Investor Relations Department of MetLife (MET) (not returned by phone or email as of the time of writing this article), have all revealed that as of today, there is no tender offer that has been made nor is currently pending. Under the terms of the agreement with BBVA, the offer must commence before December 31, 2013, and be completed before December 31, 2014.
I offer this article as a caution to investors in regard to this particular "opportunity" with PVD along with a general caution to do your own due diligence before leaping at any investment, especially special opportunity situations.
I am not a licensed securities dealer or advisor. The views here are solely my own and should not be considered or used for investment advice. As always, individuals should determine the suitability for their own situation and perform their own due diligence before making any investment.