Dow Chemical’s 1-in-1000 Stock Action Works in Warren Buffett’s Favor
Dow Chemical shares are showing clear signs of tinkering, according to an analysis by a Yale University professor.HT: Value Investing World
The shares come within cents of an important threshold–$53.72–pretty often. But they’ve closed above that level so rarely that there’s less than a one-in-a-thousand chance that it’s happening randomly, according to the analysis.
If the stock closes above $53.72 enough times, Dow has the option to buy back $3 billion worth of preferred shares from Warren Buffett’s Berkshire Hathaway. But as the Journal noted in a front-page story last week, people familiar with the matter say that executives at Dow believe someone is selling its stock short — or betting that its price will fall — to keep it from rising above $53.72.
In his analysis, Yair Listokin, who teaches contracts at Yale Law School and is a trained economist, picked 48-cent ranges for the daily closing price of Dow stock from April 1, 2014 to Monday. He plotted every 48-cent increment of the share price during this period against the number of times the shares have closed in that range.
For instance, the shares have closed just below $53.72 more than 50 times. They’ve closed in the $52.71 to $53.71 window 91 times. The number of times they’ve closed in the window just above $53.72? Seven times.
This week, the shares closed at $54.13 on Monday and $53.99 on Tuesday after the Journal story was published.
Mr. Listokin’s histogram shows the dramatic dropoff. Even accounting for different methods, Mr. Listokin said the chance of this being a random occurrence is remote....MORE