Arbitrage Opportunity in LEADER

This is hindsight.

Wayne W. Dyer said Hindsight wisdom is of no use.

But, I am posting this as someone whose hindsight could become your foresight.

There was an arbitrage opportunity (risk free profit) in LEADER lately.

Leader Universal Holdings Berhad is being privatised at an offer price of RM1.10 per LEADER share, of which the cash consideration was made up of 35 sen net special dividend and 75 sen of capital repayment.

To get a net dividend of 35 sen and as the special dividend was paid from retained earnings with Section 108 tax credit, the franked dividend amounted to RM0.467.

The share went as high as RM1.10 before the ex-date. Based on current closing price of RM0.745, how much would an investor with 0% income tax bracket earn if he/ she bought LEADER at RM1.10 right before ex-date and sold at say RM0.74 a share after ex and within contra period?

Profit = RM0.35 (net dividend) + RM0.117 (section 108 tax credit) + RM0.74 - RM1.1 - brokerage) x no of shares

Assume buy-sell brokerage fee of 1 sen,
approximate return in about 1 year time, after refund from IRB = (11.7 - 2) sen/ (2 + 35/12) sen = 197.3%!

Say if one falls in income tax bracket of 12%,
approximate return in about 1 year time, after refund from IRB = (6.07-2) sen/ (2 + 35/12) sen. Still a handsome 82.8%!

Note: 35 sen dividend would be distributed within 1 month from ex-date and using 35/12 as time factor to calculate the % of return.