Greater than 1000 shares of APH without using the cash component
Hard to believe but such an opportunity existed and over a few days. The key to understanding if such a raw opportunity exists to end up with more Aphria shares without using the cash component is that 0.3546 conversion factor. As long as the share price ratio is less than 0.3546 the opportunity exists but of course because of transaction fees it needs to be even lower.
Step 1:
Let’s use 1000 shares of APH and we will assume that the share price spread is 0.3546. For example, the share price of APH is $13.89 and for NUU is $4.89
$13.89 x 1000 shares = $13,890 / $4.89 = 2,823 shares of NUU.
2,823 NUU converted at 0.3546 = 1,001 shares.
That math works nicely because we the 1 extra share could easily be removed because of the need to pay the transaction fees. But buy the book, a $10 fee for a 1000 share transaction is a cost of $0.01 per share. In other words, ideally you want the share price in the above example to be $13.90 and $4.88 OR some other variation to capture that total $0.02 ($13.91 and $4.89 etc).
Step 2:
Recognize that so long as the share price of NUU to APH is less than 0.3546 the opportunity likely exists. We say “likely” because the closer it is to 0.3546 there exists the possibility that fractional shares on converting plus transaction fees could result in a final settlement of less than 1000 shares as we saw above in Step 1.
Many find the reverse math difficult. For example, they find the CME to ACB math easy because so long as the share price of CMED divided by the share price of ACB is less than 3.40 then then the opportunity exists. We can do the same math here, as one APH share needs to be at least 2.8201 times the current share price of NUU. Mathematically, it is the inverse of 0.3546 so 1/0.3546 = 2.8201. This is the same math as exchange rates where a Canadian dollar is worth $0.80 USD but a US dollar is worth 1/0.80 or $1.25 CDN.
As long as APH is at least 2.8201 times the share price of NUU the math works.
Example, APH at $15 and NUU at $5 = $15/$5 = 3. 1000 shares of APH would be sold for $15,000 and 3,000 shares of NUU bought that would convert back to 1,063 shares of APH.
There were five days between Feb 1st and March 3rd that the above math held true during some part of the day including at any time on February 27th. On February 27th, the greatest spread would have resulted in 1,098 shares on APH being realized on the back conversion at the time of closing. The $0.60 per share is what can be referred to as the icing on the cake under these circumstances as even under our share count break even analysis above, the investor would also receive 2,823 x $0.60 = $1,693.80 in cash (2,823 shares of NUU at $0.60 per share).
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