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GSI Technologies - Merger Arbitrage With 19% Spread

On the 19th of August GSI Technology (NASDAQ:GSIT) received an acquisition proposal from GigOptix (NYSEMKT:GIG) for per share consideration of $6.50, valuing the whole company at $155m. GSI board of directors promptly responded that they are reviewing the received offer. Two days after the proposal was issued the GSI stock is trading at $5.47, indicating a whopping 19% spread.

I believe this spread either presents a compelling merger arbitrage opportunity or at least indicates material undervaluation of GSI Technologies. I will detail my reasoning in this article. For those interested in the background of GSIT and their business, I recommend reading through this bullish article on SA Pro.

Proposed merger structure

As outlined in the business...

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