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(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

Gyrodyne Co. of America Inc. (NASDAQ:GYRO) recently adopted a plan of liquidation that is being severely mispriced by the market, creating one of the best arbitrage opportunities we have seen in a long time. The options to partake in the first and second dividends have passed, leaving only the stub. Based on the estimated value of its real estate holdings, the company estimates the stub to be worth $5.70 per share, which can be found here in the 8-K dated Dec. 27, 2013. It is our belief that current holders of GYRO stock are under the impression they will be entitled to receive the second dividend, estimated at around $10.89 per share and causing the stock to remain at lofty levels. In fact, however, those stockholders won't receive this dividend, and as soon as this confusion subsides, the stock will come crashing down to around 50 percent of current levels. Two top institutional holders have liquidated their holdings in GYRO, and you should too. Consequently, we assign a sell rating on the stock with a $5.70 price target.

First Special Dividend:

The first special dividend was in the form of $45.86 per share in cash, and interest in GSD, LLC, which is a newly formed company. GSD, LLC holds 100-percent economic interest in all of Gyrodyne's properties: Flowerfield, Port Jefferson, Cortlandt and Fairfax. GYRO has estimated the value of those properties held by GSD, LLC at $20.70 per share. After the merger is complete, GSD, LLC will receive approximately 55.6 percent of Gyrodyne LLC. NASDAQ rules governing special dividends greater than 25 percent require that the ex-dividend date be set for one business day after the payment date. In this case, the payment date was Dec. 30, 2013. Therefore, the ex-dividend was set for Dec. 31, 2013, and that was the reason for the huge fall in share price on that day.

Second Special Dividend:

The second special dividend is paid in the form of Dividend Notes estimated to be worth $10.89 per share. After the merger is complete, holders of the Dividend Notes will receive approximately 29.2 percent of Gyrodyne LLC. These notes carry an interest rate of 5 percent per annum. To receive these notes, an investor must have been a holder of record as of Dec. 31, 2013. Therefore, the ex-dividend date was on Dec. 27, 2013, rather than the one business day after the payment date that was called for with the first special dividend because that dividend was greater than 25 percent. We have contacted both Gyrodyne (631-584-5400) and Nasdaq's Corporate Data Actions department (203-926-3501), and both confirmed that the option to partake in the second special dividend has passed.

Stub:

Until the merger is completed, GYRO will continue to trade as a stub representing the remaining equity of Gyrodyne Co. of America Inc., which the company estimates to be worth $5.70 per share. After the merger is complete, holders of the stub stock will receive approximately 15.2 percent of Gyrodyne LLC, which will continue to trade under the symbol GYRO.

Two Top Institutional Holders decreased their holdings in GYRO (stub) to ZERO!

On Jan. 2, 2014, Bulldog Investors, LLC filed a 13D/A showing the liquidation of its holdings to zero.


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On Jan 2, 2014, Towerview LLC filed a 13G showing the liquidation of its holdings to zero.

As of Sept. 30, 2013, here is where Bulldog Investors, LLC and Towerview LLC ranked in terms of institutional holdings.


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Source

Useful diagrams and data taken from the 8-K on Dec. 27, 2013:


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After reading through the 8-K, GYRO makes it very clear on what the stub is worth. After investors realize that the opportunity to receive the second special dividend has passed and the stub is worth around $5.70, the stock will come crashing down. Two top institutional holders realized GYRO is overvalued and sold 100 percent of their holdings and you should too. Consequently, we assign a sell rating on the stock with a $5.70 price target.

Disclosure: I am short GYRO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Gyrodyne Likely To Lose Half Its Value In The Coming Days