WWAV shares began trading “when issued” this morning, and since you don’t need a borrow on when issued shares, investors are buying shares of DF and simply selling shares of WWAV/A and WWAV/B (when issued) – both those securities are now trading at a substantial discount to WWAV regular way (WWAV/B is trading nearly a $1 below WWAV).
There is also significant volume in the DF when issued (trading at $9.15), but keep in mind that value includes the remaining 19.9% interest in WWAV that DF will seek to monetize over the next 18 months.
Using the most aggressive value of the DF stub obtained by looking at all these moving parts – DF regular way less the value of WWAV/B, the stub is trading at approximately $6 per share, which still only equates to 5.1x EV/EBITDA for the fluid milk business, so there is still plenty of meat on the bone.
For investors that are able to trade when issued securities (not everyone), purchasing DF when issued makes a great deal of sense to us at this point. Interestingly, while acknowledging that WWAV is a difficult borrow, investors so inclined and able to do so could by WWAV/B when issued and short WWAV regular way – the two values are nearly a $1 apart and that spread will move to zero over the next week.
-Rob
Robert Campagnino
Managing Director
HEDGEYE RISK MANAGEMENT, LLC
Matt Hedrick
Senior Analyst
