Billabong announced last Friday that the retail component of its entitlement offer had been completed, with a take-up rate of 51%. Such a low take-up rate is puzzling because for more than two weeks until the offer closed, the share price traded at a premium to the offer price of $1.02.
For those shareholders not wanting to increase their overall Billabong holdings, or without the cash to do so, the obvious step was to lock in the arbitrage by selling shares on market to buy them back at a lower price through the entitlements offer.
It would have certainly been worth the effort. At one point during the offer period Billabong traded at $1.185, which meant that a risk free return of 11.9% could have been realised on a shareholders overall Billabong position (the rights offer was six for seven). The proceeds of the share sale would have been received long before the rights offer payment was due.
I'm not sure whether retail shareholders didn’t manage to review the paperwork or just weren't alert to the possibility of an arbitrage. In any case the opportunity has been lost for half and the underwriters must be delighted.