Societe Generale

Societe Generale announced a rights offer today almost 40% below the current share price. The current share price is roughly 77.72 euro and the rights offer guarantees the holder of 4 shares of SocGen the right to buy one share at 47.50 euro. The cost of the rights offer is estimated in the article with a theoretical value of 5.90 euro. Current shareholders should be particularly happy with this offer. If you held 4000 shares of SocGen, you could swap out 1000 for 5900 euro for an immediate net profit of 24,320 euro (excluding commissions and slippage) which would be about 7.8% of the current value of your shares while maintaining the same allocation. I should note that I haven't read the document and there might be limits to the offer so that this arbitrage could not happen exactly. I'm just pointing out the theoretical profit.

If you don't hold any of the shares, there could still be a big opportunity here. Many firms, Bearings, LTCM, Amaranth, to name a few, have been destroyed by large unprofitable trades. However, many of these trades would have been profitable had they been able to hold on to them (or at least not nearly as costly). These firms could have continued to exist if they had weathered the storm and mainained their financing. Their problem is the crisis and the sharks moving their positions against them. SocGen doesn't hold any more of their costly positions and have announced the write-off. The problems are over. The stock might continue to go down further in the short-term, but with it makes real sense to take advantage of this offer. I did a few calculations in an excel sheet and found that if you take advantage of this offer the spread between the yield when taking advantage of this offer and just holding shares outright increases substantially as the stock price increases (never going negative, but that makes sense). Selling at the current price would earn almost 7% on this strategy. That seems to be pretty safe and could be levered for a large return. With a longer term outlook on this company, you could earn a very nice return beyond what you could earn otherwise.