It’s official… atleast as far as current shareholders are concerned. They approved the deal recently and looks like it will close no later than Jan 7, 2009. That’s good news for me, as my entry point shows here:
Entry Price: $65.34
Deal Price: $69.50
My ROI will be: 6.4% (27.6% annualized if it close on Jan 7, 2009)
Source:
Eli Lilly has completed its tender offer for ImClone Systems. I had this one in my simulated portfolio. Here’s how I made out:
Entry Date: 10/10/2008
Entry Price: $65.00
Tender off price: $70.00
Deal closed: 11/24/2008
ROI: 7.69%
Annualized Return: 62.9%
Not bad! If I had added this one to my real money port, I most likely would have been in for $2,000. That means (not including broker fees), I would have made roughly $153.80.
My completed deals to date are located here. My current M&A portfolio is located here.
Source:
Reuters reports that Roche’s ability to raise funding for the Genentech merger are in doubt.
“…In light of the current climate, a $45 billion loan looks large. It would have to be a combination of everything — Roche would have to print bonds to get the deal done,” a senior banker close to the deal said.”
“…I just don’t see that number being attainable any time soon…”
Current arb situation:
Deal price $89/sh
Current price of DNA: $72.2/sh
Arb ROI: 23.2% — looks tempting, but I am already in at $80.63 (see my portfolio). I think it is gonna drop a bunch more in the coming weeks as Roche struggles to shore up financing for the deal. If so, I might add more to my position.
The spread is opening up, but so is the risk.
We’ll see what Roche’s next press release says and go from there I guess. If I were to add more to my position now, I would wait until it drops even more, say below $60. But only if Roche keeps reiterating their intention to finalize the deal.
The original deal was to exchanbge 0.485 shares of EXC for each share of NRG. (See this link for all my related posts about NRG.)
“The second rejection by NRG Energy’s board of directors came nearly two weeks after Exelon took its bid directly to NRG Energy shareholders by launching an exchange offer for all the company’s outstanding shares.”
and
“The board of directors is unanimous in its belief that the Exelon offer is inadequate, dilutive, significantly undervalues NRG and does not fully reflect the fundamental value of NRG’s assets, operations and strategic plan,” –NRG Chairman Howard Cosgrove…
NRG is recommending to the shareholders they do not sell.
Looks like posturing by NRG to me to get a higher offer. We’ll see if EXC sticks to it’s guns on the low-ball offer and tries for the hostile take over. If they make a higher offer, all the more better for my arb situation.
Notes:
Exelon’s tender offer expires Jan. 6
Sources:
PR from EXC (includes tender offer info for shareholders)
Interesting read in dealbook blog on NYT (12/2/2008) about how the NRG deal so far has been a text book execution of a hostile take over attempt.
According to Reuters, Roche is standing firm on it’s current buy-out deal.
Roche Holding Ltd. sticking by its $43.7 billion offer to buy out the rest of Genentech Inc.
Deal recap:
As I originally posted here, the details are:
Deal price: $89/sh
Nov 18 price: $80.63
ROI: 10.4%
Sources:
Well, the deal offer is still the same: 0.485 shares of Exelon stock for each share of NRG.
Note:
Exelon said the exchange offer will expire at 5 p.m. EST on Jan. 6, 2009.
So my, my number crunch (which I wrote about here) is still basically the same. However, the new risk for this deal is that, despite the Jan 6, 2009 exchange offer deadline, it might to take much longer to complete. A recent article in NYT’s DealBook talks about these issues.
I prefer friendly deals that have a firm deadline, not hostile (aka chaotic) deals, so this one will remain on WATCH status (however, the arb spread right now is a BUY for me in terms of ROI only; I have a position in NRG stock in my simulated portfolio).
Current numbers 11/13/2008:
EXC: $52.54
NRG: $22.00
After deal exchange rate, the value of NRG’s shares today is: (0.485 * $52.54) = $25.48. Or, approx 15% ROI if the deal happened today and I were in at $22/sh. Unfortunately for me, my entry point a few weeks back was $24.50, so my current ROI would only be: 4%.
UPDATE: Deal passes federal antitrust review.
Target: UST Inc. (UST) - formally United States Tobacco Company.
Buyer: Altria Group, Inc. (MO) - owns cigarette maker Philip Morris USA Inc.
Last Trade: $67.74 (was $65.34 on 10/14/2008 when I originally started tracking this deal)
Deal Price: $69.50
Deal closes: Early January 2009? (1/7/2009 via Morningstart.com article)
Back story:
“While Altria currently has fully committed financing to complete the transaction, Altria’s lenders advised that it would be preferable to close the transaction in 2009…”
“Altra agreed to raise the fee it would pay UST if the deal isn’t completed due to financing issues to $300 million from $200 million.” - wsj.com
Arbitrage opportunity:
Spread: $4.16/sh (as of 10/14/2008)
Potential ROI: 6.36%
On 100 shares, I could make $416 (less commission).
Risk:
If I can allocate $6,534 is liquid cash that can be tied up for the next 2-3 months and can find an entry point around $65.50 or less, I will buy 100 shares.
The CAPA deal is done. As I mentioned here, the deal did not have much arb potential for the small money amounts I can invest (hey, I have a small bankroll). However, in my simulated portfolio, I did make a positive net on the arb play.
Entry point: 10/14/2008 @ $4.70/sh.
Exit point: 11/3/2008 @4.80/sh
ROI: 2.13%
Annualized: 38.3%
So, looking at it as an annual return, not too shabby. However, I would have only bought in for $2,500, so my net dollars in the bank would have been: $53.25 - $14 in trading fees = $39.25.
Another note: I have not actually completed many deals yet with real money, so I have no idea how long it actually takes for the deal to settle in my brokerage account. In the number crunch above, I do not allow for any delay in closing. I assume there will be in the real world though, so my ROI actually would have been slightly lower.
Sources:
Update: NRG’s board made an official response today in regards to the offer. Not much new, but still looks like Exelon might go hostile:
Rowe (CEO of Exelon) said that Exelon “will get to a point soon where we consider it appropriate to take our offer directly to NRG shareholders rather than continue to wait for the NRG board to act.”
Looks like NRG is stalling a bit, maybe trolling for a better price.
Target: NRG Energy (NRG)
NRG last trade (11/04/2008): $24.50
Deal price: a fixed exchange ratio of 0.485 Exelon shares for each NRG common share.
Buyer: Exelon Corporation (EXC)
EXC currently (11/4/2008) trading at: $57.37 (It was $53.22 on 10/20/2008 when I first starting tracking this one).
Notes: Unsolicited, all stock offer.
From Exelon’s own press release:
Exelon has offered to acquire all of the outstanding NRG common stock in an all-stock transaction with a fixed exchange ratio with a value of $26.43 for each NRG common share…
and
Our offer represents a 37 percent premium to NRG shareholders above NRG’s closing price on October 17, 2008.
Here is what NRG had to say:
NRG stockholders are advised to take no action at this time pending the review by NRG’s Board of Directors.
Side note:
Berkshire Hathaway (Warren Buffett), bought around 3.2 million shares of NRG during the second quarter.
Crunch:
As of: 11/04/2008
Buyer: EXC $57.37
Target: NRG $24.50
Exchange rate (number of shares of EXC offered per share of NRG) 0.485
Current value (value of each NRG share at current prices) $27.82
Arbitrage spread $3.32
Arbitrage spread 13.5%
Conclusion:
Since it is an unsolicited offer, it’s not 100% friendly. If fact, Reuters reported it could go hostile. NRG has not agreed to the deal yet. The spread is arb 13%+ right now (see my number crunch above). My M&A Status: WATCH or BUY. If the arb spread stays above 8%, I will buy. If it goes back down below 5%, I will watch.
Sources:
Reuters article on latest letter from NRG to Exelon
Article about EXC going hostile on this one, if need be (Reuters)
Well, the banks are off the hook now (see this article at Marketwatch.com). Looks like Hexion is gonna be in some deep financial straights if it has to pony up all those millions if the deal goes south.
Regardless, I no longer have my status for this one as a Buy. I do own shares in HUN (see my previous posts) and now need to assess if the shares look okay for the long term (eg. is HUN a company I would invest in if there was no M&A arbitrage opportunity). I’ll do some more research and see. If not, I will sell soon and take the loss. For now, I am holding the shares.
M&A status: SELL.
Backstory:
I thought this tidbit was rather funny (from a Reuters article):
Arbitrage traders, who have closely followed the deal, packed into Friday’s courtroom. Most remained glued to their blackberries throughout, keeping an eye on Huntsman’s share price. This annoyed Justice Bransten, who reprimanded the court audience at the end of the morning’s hearings for the continual typing.
