StockData.org - Arbitrage Opportunities

Tender offer extended: Exelon will continue to offer 0.485 shares of EXC for each share of NRG until Feb 25, 2009.

Also, some large shareholders are siding with NRG on not recommending selling shares to EXC at the current tender off price (more at Reuters).

“Solus Alternative Asset Management LP, a New York-based
investment adviser to two funds holding 6 percent of NRG’s
stock, said it agreed with NRG’s board that the Exelon offer in
its current form was “highly conditional and undervalues NRG.”"

Roche’s announcement of a lower offer for the remaining shares of DNA makes me want to abandon this play.  They (Roche) are having earnings trouble and in my opinion, this is a last gasp to try and acquire DNA while they still can get financing (and that’s already in question, as I wrote about here).  Roche says they are confidant the deal will happen, but I am not.

Either way, I am selling my portfolio’s DNA holdings at the current market today and getting out.  I will still make a small positive net, but I feel the risk is too high to continue to hold.

Many people think DNA is worth a lot more than the current offer and I think Roche is not going to be the one to do the deal.  My feelings are that it will be quite some time before a new bidder, if any, surfaces.  Since I am only in DNA for the M&A play, I am getting out.

My entry: $80.63 (11/18/2008).

My exit: $82.45 (2/4/2009).

My ROI: 2.3%, annualized = 10.7% (not too bad I guess).

Is 3Com going to spin off it’s cash cow again? (last time it was Palm). Research shows that recently hired TippingPoint (a 3Com company) President Alan Kessler was once hired as Palm’s president in 1999 by 3Com when it still owned Palm.  Three months later, 3Com spun off Palm. Now he’s back at another 3Com subsidiary (which many think is ripe for a spin off).

Me thinks TippingPoint is going to be sold off, despite what COMS says it it’s recent press release on hiring Kessler.

Spinning off Palm last time turned out to be a great deal for 3Com, since they got some serious internet bubble cash from the deal.  Do the 3Com execs see TippingPoint at the height of its value (like Palm was) and are looking to sell this little cash cow?

My opinion is that COMS is still as a takeover target (see my post here) and as such, unloading assets to boost cash would make the company’s balance sheet rosier.  However, TippingPoint is one of the few reliable positive cash flow streams COMS has right now, and would hit the Income Statement and Cash Flows in a negative way.  I guess the COMS bean counters know.

Are the 3com execs still in dismantle and sell mode, or grow and expand mode (as the new China-based efforts point to)?  Either way– COMS stock price still looks attractive to me (currently under $3 a share).

Well, it’s not an all cash deal, so this one is a little more tricky.  Now PFE’s stock price is part of the equation:

“The New York-based company will pay $50.19 — $33 in cash and 0.985 share of its stock — for each Wyeth share. That represents a 29 percent premium over Wyeth’s closing share price last Thursday, before news of the talks began to leak.” - Reuters

and

“Pfizer and Wyeth expect the deal, which carries a breakup fee of 3 percent, to close at the end of the 2009 third quarter or during the fourth quarter. Analyst said there did not appear to be much risk of any anti-trust issues holding up the deal.” (same Reuters article)

Currently, WYE is trading at $43.46.

Let’s do a number crunch for an arbitrage trade on WYE today:

1/26/2009:

WYE: $43.46

PFE: $15.61

So, If I bought 100 shares of WYE today, with the current terms of the deal:

Cost Basis: $4346

(33 * 100) + ((0.985 * $15.61) * 100) =

$3300 + $1537 =

Payout: $4837

Net: $491  (or, 11% ROI)

Conclusion

I cannot ignore the PFE component of the deal.  The lower PFE goes, the smaller the arbitrage gap.  For now, as long as PFE stays above $15/sh, I might consider buying into this deal.  Also, it is important to note that the deal is not expected to go through until 3rd or 4th quarter 2009 (see quotes above).  That’s a long wait if I buy now.

I need to look at the SEC filing and see if there are any other catches.

Pfizer Inc. (PFE) said it is in talks to buy Wyeth (WYE).  WSJ reports that they have been talking for months now and are not close to a deal yet:

“The two sides have been in discussions for months and a deal isn’t imminent, the people said. Given recent market volatility and overall economic uncertainty, the talks are especially fragile and could collapse, the people warned.”

So, we don’t have a target price yet, but we’ll put this one on our radar.  Today, WYE stock is already up $3/sh to $41.89, or a 7+% jump.

FRME announced that it completed the LNCB merger successfully on Dec. 31, 2008.

Here’s how I made out on the deal:

I get to choose either:

• 0.7004 shares of FRME for each of my LNCB. $22.21 * 0.7004 = $15.56. IOW, $15.56 for each share of LNCB if I sell my FRME stock soon after the deal closes.
• $15.76 cash for each share of LNCB.

Since I am not in FRME for the long term, I will take the cash offer.

I entered at $13.  I will get $15.76.  I entered the stock on 10/14/2008.  Ignoring commissions, my ROI was 21.2%.  My annualzed return was 99.3%!

Something to note here… there were some rules/limits on the amount of cash the would be distributed (which I talked about here).  If everyone takes the cash deal, there will not be enough cash.  In that case, they will be given stock.  For number crunching purposes, I am just ignoring all that for now and assuming I will get 100% of the pay out in cash.

Nuts and bolts of the deal payoff:

“In connection with the Merger, shareholders of Lincoln Bancorp were offered the opportunity to elect to receive either 0.7004 shares of First Merchants Corporation common stock or $15.76 in cash in exchange for each Lincoln Bancorp common share owned by them. Pursuant to the terms of the Merger, under certain circumstances, the 0.7004 exchange ratio was subject to adjustment and the cash elections made by Lincoln Bancorp shareholders were subject to being converted into elections to receive stock. Although the 0.7004 exchange ratio will not be adjusted, the cash elections made by Lincoln shareholders will be proportionately converted into elections to receive stock in accordance with the terms of the Agreement of Reorganization and Merger referenced below. Cash will also be paid by First Merchants Corporation in lieu of issuing fractional shares resulting from the 0.7004 exchange ratio.”

Other sources:

• PR on Yahoo Finance
• SEC Filing

Drugmaker Elan (ELN) said it wants to merge with someone and has hired advisers (Citigroup Global Markets) to review their options. Elan is Ireland’s largest drugmaker.

It is reviewing options such as a “…minority investment, an alliance, or a merger or sale of the company.”

The stock has been down and critics blame weak sales and company mismanagement.

Currently trading at $8.15.

Abbott said it is buying Advanced Medical Optics (EYE) for $22/sh.  EYE’s shares jumped from $8.85 on Friday to a current $21.44 today.  Not much of an arbitrage scenario here, but I’ll keep an eye on it.

RE: Rohm & Haas Co. (ROH) by Dow Chemical Co. (DOW)

Acquirer: DOW
Target: ROH
Offer per share: $78 cash
Target share price: $56.76
Expected closing: 1/15/2009
ROI: 37.42%
Annualized gain: off the charts

The reason for the huge gap is the dumping of the Kuwait/DOW partnership this past weekend.  Many feel the deal for ROH will get cancelled, since DOW was counting on billions from the Kuwait partnership to use in the ROH deal.

Here’s why this *might* still be a buy if you are feeling lucky: DOW still has an intact bridge loan for the full deal amount and can, technically, still do the deal before the end of January 2009.  If you buy now on the huge price drop of ROH, and DOW goes through on the deal at the current offer, you’ll make a killing in your annualized return on this arbitrage.

However– I think it is obvious the banks that are funding the bridge loan for the deal will pressure DOW to either 1) cancel the deal or 2) renegotiate the deal offer price downwards.

I am watching this one for now only, not buying–  It is too hot a potato for me.  I got burned on the HUN deal, so I am playing my next few arb deals a little bit safer.

If I had the cash to risk losing (and I mean really losing it all), I would consider this deal, as the payoff is huge if it goes through, even at a lower offer price.

Well, looks like I am going to lose on my decision to buy HUN for the short term.  They announced the deal was killed today, with Hexion paying break fees to HUN ($750M cash, $250M notes).

I went against my gut and held, when I should have sold earlier (I wrote about maybe getting out of the position here).

Notes:

HUN says it is still suing the banks involved for $2B+, so when the dust clears, HUN might get some more cash.  However… I was looking for a short term M&A play, not a long term business model play.  With my shares now down 71%, I am in a position where it is worth more to me to just hold. *sigh* — this why you set stop loss orders and follow them.

Here is the number crunch:

Entry price: $11 — I bought 200 sh

Today’s price: $3.19

ROI: -71% (yeeks)

Here is my current M&A portfolio.

Sources:

PRNewswire release