StockData.org - Arbitrage Opportunities

Deutsche Telekom is chasing Sprint.  No deal annouced yet, and stock gapped up today.  Currently it is up 10% on the news.

“Sources said Deutsche Telekom (DT) could submit a bid for Sprint, which has a market valuation of $10.6bn (£6.3bn), within the next few weeks.” - telegraph.co.uk article

Just hazzarding a guess, I would says DT will offer 20-30% premium to the recent trading avg of Sprint.  So, I think the price could pop another 10-20% from today’s current price.

DT sounds serious (based on the article above).  I think I will gamble a bit and play for the post-annoucement pop.  I am entering a position today (9/14/2009) at $4.10/sh in my simulated portfolio.

Update (1)
Nice article on SeekingAlpha talks about how Agrium’s bid for CF affects CF’s bid for TRA (and vice versa):

Article points to the fact that the market is pricing a higher probablity of the Agrium-Cf deal getting done instead of the CF-TRA deal:

“In the interim, the market seems to be betting on an Agrium-CF combination,” said Mr. Johnson, pointing to the relatively narrow spread between Agrium’s offer and CF Industries’ shares, compared with the gap between the price of Terra shares and the CF Industries’ bid.

I am going to re-think my position and possibly sell my TRA holdings.  I am getting close to a 10+ ROI just on the position now.

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Orig post from Aug 26, 2009:

Based on recent comments from CF Industries (CF), a rasied offer of 0.465 shares of CF for each share of Terra Industries (TRA), would yield a 20%+ ROI playing this arbitrage opportunity.

Current prices:

TRA: $30.11

CF: $83.75

$83.75 * 0.465 = $38.94

$38.94 - $30.11 = $8.83

$8.83 / $30.11 = 29.3%

CF Industries Holdings is willing to increase its offer for Terra Industries, the company said Wednesday. Two earlier takeover offers were rejected, The Associated Press reported.

I initiated a position in TRA today at $30.15/sh.

Press Release from CF.

Alcatel-Lucent stock is trading higher on loose speculation of a possible takeover by Huawei Technologies and ZTE (both Chinese firms).

The NY Times sums up pretty well why the idea of a buyout from a Chinese firm is unlikely:

“…A merger with a Chinese firm would be complicated, given that Alcatel-Lucent owns Bell Labs, a major military contractor for the United States government. …”

“… Alcatel has been struggling to complete its integration of Lucent and might be reluctant to go through yet another combination. One justification for the deal three years ago was that the enlarged company would compete better with cheaper Chinese manufacturers. Selling out to one of those rivals might be seen as an admission of failure. …”

I’m not planning on buying into this one based on current info.

Virgin Mobile USA (VM) being bought by Sprint Nextel (S).  It is a stock deal with restrictions. Based on the terms (see snippet at bottom of this post), here’s how it would work out:

First, if your shares cost you $5.50 in the first place, to at least break even, S’s 10-day avg closing price ending 2 days before the deal closes must be between $4.02 and $5.17.  If it falls out of that range, I will not receive enough shares of S to equal the $5.50 deal price.

Trading prices on July 31, 2009: S: $4.00 and VM: $4.91.

If I buy at $4.91, a straight cash deal would have an arb gap of $0.59/sh.  Now, factor in the current price of S, and you can see it is $0.02 out of the money (($5.50 / 1.3668) - $4 = $0.02).  So the gap is lowered to $0.57.  If nothing else changes by close (4Q 2009 or early 2010 / see snippet below), then today’s prices equal a potential 11.6% ROI.

However, just like every deal, a lot can happen between now and then.  If I feel that S stock will stay in the $4.02 to $5.17 price range until then, I will make that 11% ROI.  The other issue is liquidity– I will need to sell my shares right away on the open market to realize any gain.  If, after the close, S tanks, I could be in trouble.

The risks are there, but my gut says worse case, I will break even on this one (making something less than 11% ROI, but something more than 0%).  I will be initiating a small simulated position today at $4.91/sh.  If I were investing real money, I would be investing 50% of what I normally put into a regular deal (eg. If I normally invest $2,000, I would only invest $1,000).

Each public stockholder … will receive Sprint shares having a 10-day average closing price equivalent to $5.50 per Virgin Mobile USA share, subject to the collar referenced below.

* The exchange ratio for public stockholders will be based on Sprint’s 10-day average closing share price ending two trading days prior to closing.
* The exchange ratio will be subject to a collar such that in no event will the exchange ratio be lower than 1.0630 or higher than 1.3668.

…

The transaction is expected to be completed in the fourth quarter of 2009 or in early 2010.

Full Press release from Sprint

Not an arbitrage opp, but more like a long term roll of the dice… you get 7-year stock warrants on this one! Wait… what?

Frontier Financial Corporation (NASDAQ: FTBK) is to be acquired by Acquisition Holdings, Inc. (NYSE Amex: DSP) (”SPAH”).  The deal is 0.053 shares of DSP stock (currently trading at $9.73 on July 31, 2009) and also 0.053 warrants of DSP stock that last for 7 years with an exercise price of $11.50/sh (expiration date is 7 years out).

Number crunch:  The 0.053 shares is well under water based on current stock prices.  However, that makes sense, as the warrants, if DSP stock goes up, more than make up for it (and you have 7 years to wait it out).  Thing is, FTBK does not appear to be in great shape (just posted a quarterly loss), and if DSP is buying them, in the short term, this might make DSP stock actually go down (putting those tasty warrants even further out of reach).

Analysis:  First time I have looked at a deal like this.  I am going to sit back and watch.  I’d like to see how much DSP stock rises or falls after the deal is completed.  My hunch is that long term, if they stay in business, the warrants will pay off.  Short term, not so much.

Here’s a snippet on the terms of the deal:

Under the terms of the merger agreement, each share of Frontier’s common stock outstanding will be exchanged for the right to receive 0.0530 shares of SPAH common stock and 0.0530 SPAH warrants upon completion of the merger. Frontier currently has 47,131,853 shares of common stock issued and outstanding, which will be exchanged for approximately 2.5 million shares of common stock of SPAH and approximately 2.5 million warrants of SPAH, in the aggregate. Such warrants will have an exercise price of $11.50 per share and exercisable for seven years. The closing price SPAH common stock on the NYSE AMEX on July 30, 2009 was $9.75 per share. The stock and warrants received will be listed on a national stock exchange.

Full Press Release

I’ve updated some existing positions since I last added info to this blog, so here’s a recap:

JAVA:

Deal to be bought by Oracle instead of IBM.  (Approved by shareholders on July 16, 2009). New offer price: $9.50/sh cash.  Not sure on deal close date, so I will assume 12/31/2009.  My entry was $8.20.  I decide to close it out today (7/30/2009) at $9.25.  Gave me a 12.8% ROI / 34.9% annualized.

HIFN was acquired by EXAR.  I was in for $3.87 and got $4.00/sh in the deal, giving me a 3.36% ROI / 31.82% annualized.

Exelon abandoned it’s deal with NRG.  So I closed out my position July 15, 2009 at $24.86/sh.  I was in at $24.50, giving me a 1.47% ROI / 2% annualized.

COMS - Sold my entire 3Com position June 25, 2009 after more than doubling my money.  Good timing too, as the price has dropped slightly since then.  I also see no deal in their immediate future, as business looks good and they seem to be focused on operations and business, not selling out.

YHOO - I am selling my Yahoo position today after ananlyzing market reaction to the deal with Microsoft.  I was in for $12.52 and am selling out at $14.60, giving me a 16.6% ROI / 38.3% annualized.

WYE - Shareholders approved the deal by PFE, so I sold out today at market price.  Since the deal is tied to share price at close, I will cut risk and take profit now.  I was in at $42.87 and sold at $46.69, giving me an 8.9% ROI / 24.1% annualized.

Looks like my TAGS position is still on track to pay out.  Mgmt scheduled a special meeting Aug 20, 2009 to vote on the previous merger agreement with a group of investers.

I should make 18% ROI if the deal closes.

Arbitrage opp.  Proposed deal from AT&T (T) for Centennial Communications (CYCL) is $8.50/sh due to close by the end of 4Q 2009.  There are some warning signs / risk, thus the gap.

More thoughts on this deal from DividendGrowthInvestor at Seeking Alpha.

Gap: ($8.50 - $7.46) / $7.46 = 13.9% ROI  (33.4% annualized if it takes till end of ‘09 to close).

Disclosure: I own CYCL shares in my real money portfolio.

IBM is in talks to buy Sun Microsystems (JAVA) “sources with knowledge of the matter said.”

“International Business Machines Corp is offering to pay at least $6.5 billion, or double Sun’s Tuesday closing price of $4.97, The Wall Street Journal reported online earlier…”

“Sources say talks could still fall apart, but a deal could go through as early as this week”

“…is likely to pay $10 to $11 a share for Sun Microsystems Inc…. The Wall Street Journal reported Wednesday on its Web site.”

Based on that info:

Target Price: $9.94 - $11

My entry point: $8.20  (based on the $9.94 price; the $11 price info came out later in the day)

Gap: minimum 21% ROI

I’m in at $8.20 /sh today for my simulated portfolio.  I think this might be one of those deals that begs a higher price.  I have no basis for that opinion, but since ~$10 is the starting point, I can see the offer going up (or maybe other suitors coming to the table to push it up a bit).  We’ll see!

Sources:

Reuters Article: “IBM in talks to buy Sun Microsystems”

Article about $10-$11/sh offer

Ok, so I am buying a position in WYE for my simulated portfolio today.  Entry price: $42.87.

Here’s the number crunch:

Deal terms: $33 cash plus 0.985 shares of PFE per share of WYE.

Entry price of WYE: $42.87

PFE today: $14.26

Deal says I get: 0.985 * $14.26 = $14.046 per sh of WYE plus another $33 per sh of WYE, or $47.046.

Gap: $4.176 sh or 9.74% ROI.

Risk factor: PFE stock tanks at time of deal close.  The $33/sh safety net is nice though.