New Capital
Contrarian, deep value, long/short equity, special situations

Genie Energy - Arbitrage Play With 10% Return In A Month

Investment thesis

Genie Energy (NYSE:GNE) just announced a tender offer to exchange up to 5m of its common shares (Class B common stock) for preferred shares (GNE-PA) on a one for one basis. Common shares are trading at $7.35, whereas the preferred stock trades at $7.78. A pair arbitrage transaction provides possibility to profit from the price differential.

Mechanics of the recommended arbitrage trade:

    Short-sell the preferred stock - cash inflow $7.78/share, maintenance margin $3.9/share, borrowing costs 2.6% annually; Buy equal amount of the common stock - cash outflow $7.35/share; Initial investment = maintenance margin + cash inflow - cash outflow = $4.33/share; In a month (Jun 23) tender the common shares, receive preferred shares and cover the ...
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