Description

Oddlot cheeseburger money to get 2020 started off right.  Pre-tax gain of ~ $1250 per account, which doesn’t top Norilsk but still helps.

Here’s the trade:

1. Buy 99 shares of MCK at $162.14

2. Tender all shares by the end of the day on March 9^th, 2020 (check with your broker on their expiration, IB typically does 1pm on the day of)

3. Receive ~1099 shares of CHNG (equivalent to receiving MCK proceeds of $174.34/share)

4.  Sell CHNG shares for the odd-lot trade or maintain a position in CHNG (check out rii136’s write-up of Change Healthcare from last night)

Exchange ratio:

It will be calculated as the simple arithmetic average of VWAP of MCK and CHNG on March 3^rd, 4^th, and 5^th.  The final exchange ratio will be announced by midnight on Friday, March 5^th.  There isn't a lower limit on the exhange.  As a result, if MCK stays flat, you're protected until $14.17/share in CHNG, at which point you'd be better off just selling MCK rather than exchanging into CHNG.  The upper limit is 11.4086 CHNG shares/MCK share.  The exchange offers a premium of 7.053% in CHNG shares for each MCK share exchanged, subject to the upper limit.

P&L:

If the exchange were to occur today, the P&L would be as follows:

Basis (A): 99 shares of MCK at $162.14/share = $16,051.86

MCK Dividend of $.41/share on 3/2/20 (B) = $40.59

Receive 11.10472 shares of CHNG/MCK share on 3/10/20 (C) = $17,260.06

P&L: C+B-A= $17260.06+$40.59-$16,051.86= $1,248.79 profit

Average ShackBurger cost: $9

Net pre-tax proceeds: 138 ShackBurgers

Details:

https://www.dfking.com/McKesson/

Trade:

I own MCK outright long but an alternative is to put this on as a spread trade.  Borrow is available on CHNG but is running ~15%pa and there are only 100k shares available.  Based on the history of these exchanges, I prefer to own MCK outright.

Risks:

The biggest one is that the odd-lot priority is cancelled and odd-lots face proration like the rest of the shareholder base.  A distant second risk is the delay of the exchange.

Catalyst

March 9^th exchange