Proctor & Gamble is spinning off its Folgers business to JM Smucker in a tax free spin off. There is a greater arb for odd lot tenders (99 shares or less) than for institutional size based on the upper end of the ratio which is 1.7213. The announced ratio today was 1.6342 for any shares tendered at and above 100 shares.

Based on the following pricing (PG-$66, SJM-$44.60), odd lot tendering carries a 16.30% return. To set up the trade you would purchase 99 shares PG at current market price and advise your broker to tender the shares into the exchange. To appropriately hedge yourself you would sell short 170 shares SJM(exact quantity is 170.4087 but fractional shares will be paid cash in leau). Your short would be closed out once your PG shares are exchanged into Folgers stock, which is exchanged one for one into SJM. Folgers stock will never trade in the market. You will bear market risk if you dont sell short the SJM but can always just sell the SJM into the market once you receive the stock. Keep in mind that you will probably be selling the stock with a lot of other people in the days following the reorg completion.

Gross P&L on the trade should be close to $1,065. Your broker should charge close to a 20% fee on the borrow of SJM which equates to about $4.50 per day. Your net P&L should still stay about $1k which is still about 15% for a 4-5 day trade. November 5th is the expiration of the tender so all shares would need to be purchase on 11/4 or 11/5 and tendered in. Details below are from PG's press release today.

The Procter & Gamble
Company (NYSE: PG) today announced that the exchange ratio for its exchange offer for P&G common stock is set at 1.6342 shares of Folgers common stock for each share of P&G common stock accepted in the exchange
offer. This exchange ratio permits P&G shareholders to exchange their shares of P&G common stock for shares of Folgers common stock at a discount of 12 percent based on the Average P&G Stock Price ($63.7766) and Average Smucker Stock Price ($44.3469) (each as defined in the
registration statements described below under

"Additional Information").
This exchange offer is in connection with the previously announced merger of P&G's coffee subsidiary with The J. M. Smucker Company (NYSE: SJM). Following the merger, each share of Folgers common stock will
automatically convert into the right to receive one Smucker common share. The Smucker common shares issued in the Folgers merger are expected to represent approximately 53.5% of the Smucker common shares that will be outstanding after the merger.
The exchange offer is designed to permit P&G shareholders to exchange their shares of P&G common stock for shares of Folgers common stock and is expected to be tax-advantaged to P&G and P&G shareholders for U.S. federal income tax purposes. The exchange offer will expire at 12:00 midnight, New
York City time, on November 5, 2008, unless extended, and will be immediately followed by the closing of the merger of Folgers and the Smucker subsidiary. The transactions are subject to customary closing conditions, including a minimum tender condition. As a result of the exchange offer, the number of outstanding shares of P&G common stock will
be reduced.

P&G is offering all 63,166,532 shares of Folgers in exchange for shares of P&G common stock. Based on the final exchange ratio, P&G will accept for exchange a maximum of 38,652,878 shares of P&G common stock. The upper limit of 1.7213 shares of Folgers common stock for each share of P&G common stock is not in effect.

The exchange offer will be subject to proration if it is over-subscribed, and, accordingly, the number of shares of P&G common stock accepted in the exchange offer may be less than the number of shares of P&G common stock tendered. If the exchange offer is consummated but not fully subscribed, P&G will distribute all of the shares of Folgers common stock it continues to own as a pro rata dividend to all P&G shareholders whose shares of P&G common stock remain outstanding and have not been accepted for exchange in
the exchange offer.