Why would anyone pay more than $45 for shares?
In the last week the price of Bank of Bermuda shares have, at times, traded slightly higher than the announced sales price of $45.
Bank shareholders are set to be paid $45 for each share they hold in the proposed deal which, if approved, would sell off the bank to multinational giant HSBC. So, why would some investors be willing to pay any more than $45 for shares?
When asked for his take on the shares trading above $45, Bank of Bermuda CEO Henry Smith said: “That is really interesting. I do not know but I am speculating that there are people who are simply selling because they know $45 is the price so they are selling now.
“Some of them may be selling for tax reasons; there are certainly people selling at this price - and a lot of you look at the volume. The people that are buying is the big question. Who is buying? And all I can assume there is that we have some arbitragers whose business is to do just this. They buy large blocks and if they build up a large enough holding they can, even at a few cents on a share, can make a decent return. If you think that the price is $45, there is already a 29 cents (dividend) declared and depending on the time of the transaction there could still possibly be another dividend. We have not declared one, and we are not promising one, but there could be.”
Mr. Smith concluded: “So, people may be thinking that they will make a few cents on each share. And if someone (else, other than HSBC) comes along with a higher offer, they could make a lot of money. But the only people that would do that are those in arbitrage.”
The bank's shares were yesterday trading slightly below $45 with a closing price of $44.90, and a trading volume of 67,000 shares.
The shares, which trade on the Nasdaq under the ticker symbol bbda, will be taken off both the Nasdaq and Bermuda Stock Exchange if regulators and shareholders give the go-ahead to the acquisition. A shareholder vote is scheduled for February 16, and regulatory approval from the Bermuda Monetary Authority is expected shortly, according to management.
