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I am an experienced individual investor who has been trading merger arbitrage stocks and options since the 90's. I am a writer with a Master of Science from Northwestern University and I truly enjoy writing articles about the stock market. I try to look for opportunities where the odds are in my... More
  • September- Back To Work (Arbitrage) Deals 13 comments
    Sep 1, 2013 11:41 AM | about stocks: DELL, DOLE, LVB, CTB, SFD, ALCS, SPRD, BMC, PVD, IN

    My first of many write-ups on Seeking alpha. Feel free to comment/add/discuss

    Summer is essentially over. That means football, school, the fall and September. Our 9th month of the year is historically the worst for stocks. But deal stocks do their own thing. And with a typically quiet August in arb land it seems almost every arb stock I own has news in the coming month.

    DELL-Sept 12 shareholder vote. With Icahn losing in court, a change in the voting by-laws disallowing the uncast votes and the new record date which gives all the arb funds a vote this should be a formality. Michael Dell beat Icahn. That alone makes me want to invest in his company going forward though I can't. Even when Icahn loses he makes tens of millions. Must be nice. Still 11 cents on the table.

    DOLE- Sept 12 go shop period ends. 13.50 deal from Dole founder Murdock is solid but at least four other interested parties are snooping around. Stock trading between 15 and 30 cents above deal price. Are the buyers above 13.50 smart money or gamblers? I hope smart money as I am one of them. If one isn't convinced we will see a higher bid he could sell the Dole 14 Put and take in 45 cents premium. I did this on Friday. If an overbid announces itself I make 45 dollars per contract (assuming deal closure) and if not I would lose 5 dollars per contract.

    IN-If anyone is involved in this arb and it feels like this has been going on forever...well it has. Honeywell is paying 10 bucks here. Last we heard back in June the companies once again pushed back the closing timeframe to as soon as possible in the 3rd quarter. Well that didn't happen. They've been working with the FTC and all that's left of the 3rd quarter is September. 1 1/2 percent left. If anyone was really scared of this not going through I would think we would see some put buying. But three of the four option months have a total of 2 put contracts in the open interest column. IN hasn't closed below 9.85 since before the 4th of July.

    SFD-Shareholder meeting September 24th. Closing about a month later. Plenty of issues. Starboard is an activist involved here. Selling out to a Chinese company initially caused a political uproar though it has quieted down considerably. We could see some more noise as we get close to the finish line. Spread has tightened though the 32 PUT is still bid more than a dollar. Earnings Friday.

    RUE-Sept 19 shareholder meeting. Stock had been beaten up recently probably due to other teen clothing stocks poor results. It traded almost 5 percent lower than deal price but recovered half of that.

    TSRX-Sept 11 tender will expire unless extended. No HSR issues. CVR can be had for 16 cents with a chance to make 1 or 2 dollars. The milestones are not far apart so it is probable that if the first one is met (125 million tedizolid sales) the second one will kick in on a pro rata basis (125-135 million). The CVR will not trade publicly

    PVD-Tender ends Sept 27. Seems like the possible additional dividend will not be paid. Still 75 cents on the table but in percentage terms not too much.

    ALCS-September may bring holders another bump or a final resolution. Stock has been trading 30 cents above the offer (14.60 vs 14.30 offer)

    LVB-Same as ALCS. Another bump? Or is 40 really best and final. These possible continued overbids come down to entry price. Two days ago LVB could have been had for approx 40.05. It traded at that price. 5 cents for a shot at 20 or 40 times that would have been a risk/reward almost anyone could live with.

    BMC-CFIUS review may be done in Sept. But if not shouldn't be too much longer. 25 cents still in spread

    SPRD-Tuesday shareholder meeting. May get update. 74 cents in spread. Spread has tighened gradually since deal announced in mid July. Often Chinese deals trade wider than US ones so the 'highish spread' doesn't overly concern me.

    CTB-Vote Sept 30. Lot going on here. CTB's last quarter stunk. Chinese strikers at plant in China. Special review in India. David buying Golliath. Financing in a few weeks. Thing is all is coming to a head in September. I have never understood the Texas type spread. I get why it wouldn't be Rhode Island but still.

    Disclosure: I am long CTB, SFD, SPRD, ALCS, IN, DELL, DOLE, BMC, PVD.

    Additional disclosure: I am also short Puts on some of the stocks mentioned above

    Stocks: DELL, DOLE, LVB, CTB, SFD, ALCS, SPRD, BMC, PVD, IN
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Comments (13)
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  • merger arb trader
    , contributor
    Comments (3) | Send Message
     
    Thanks for compiling this and for some smart thinking. Do you think Dole gets another offer or are you in it above 13.50 because you like the risk/reward?
    2 Sep 2013, 06:04 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (1425) | Send Message
     
    Author’s reply » Your welcome...The market is telling us that there is a likelihood of a higher offer for DOLE. There are other interested parties.
    I feel the risk/reward is worth it especially the way I entered: Sell the 14 Put for 45 cents so if 13.50 turns out to be the final price you would lose 5 dollars per contract (14-.45=13.55). But if there is a higher bid the 14 Put will be likely be worthless (assuming the higher price is 14 or higher. And as long as it is 13.55 or higher you won't lose money).
    If one thinks the higher bid will be more than 14 it makes sense to just buy the stock here at 13.70 to capture all the upside.
    3 Sep 2013, 05:33 PM Reply Like
  • johncworth
    , contributor
    Comments (439) | Send Message
     
    This is a terrific article, and something I have not seen done this way on SA before. Thank you very much. Well done.
    3 Sep 2013, 10:35 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (1425) | Send Message
     
    Author’s reply » John, I appreciate the kind words.

     

    Keeping track of key dates is always important, especially in arbitrage situations.

     

    The two great things about SA is the volume with so many articles and blogs there is something for everybody. And the really smart people who write on here. Key is to know where to look
    3 Sep 2013, 05:39 PM Reply Like
  • arbtrader
    , contributor
    Comments (539) | Send Message
     
    Great article and summary of the deal facts. Your focus on the dates is absolutely key in arb. AR depends on time to close. As you point out with IN, a fantastic return can become CD-like very quickly.

     

    I like most of those deals you mentioned. RUE especially. The equity has been weak but some OTM calls went for 5c today. Very rarely have I seen put sales (decent size) at that price and the deal is in real jeopardy. AT.

     

    PS- CTB debt sale should be rolling along soon. How they massage that China strike will be revealing. If they can sell the debt -the ultimate bagholders- then you have to find the equity interesting.
    3 Sep 2013, 10:08 PM Reply Like
  • arbtrader
    , contributor
    Comments (539) | Send Message
     
    That should read 'OTM PUTS went for 5c today'!
    3 Sep 2013, 11:28 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11101) | Send Message
     
    This is a great rundown of the current arbitrage opportunities. Thanks for writing it up.
    3 Sep 2013, 11:02 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (1425) | Send Message
     
    Author’s reply » Thank you. Getting nice comments from Chris and AT, two of the very best on this entire site means a lot.

     

    Chris shares his ideas, macro and micro, on pretty much an hourly basis which provides anyone who is smart enough to follow a chance to learn, research and profit.

     

    AT (Arbtrader) and I have shared arbitrage chat on another board for well over a decade. We've seen everything from deals that had closed during a trading day still trading 50 cents shy of the deal price to the 2008 lunacy.

     

    When funds have to sell what they can and not what they want some arb stocks' AR's offer among the best value in the market.
    3 Sep 2013, 11:55 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (1425) | Send Message
     
    Author’s reply » There have been moves in a couple of the above stocks the past day or two....With arb stocks it often (not always of course) means some good news is about to surface.

     

    IN- printed 9.95 yesterday a price it hasn't been at since July. Could the FTC finally be ready to approve?

     

    ASIA-This one I didn't mention in my blog because it didn't have a Sept date to watch out for but today it is trading at 11.60 which is 40 cents shy of deal price. Yesterday's low was 11.27. ASIA hasn't been at 11.60 in a month. Investors are still waiting on the date for a shareholder vote to be announced.

     

    RUE-Has recovered much of the decline from a week ago (40.09 to 41.50) but is still not trading where it was. Option volatility has come way down as one might expect as fear as mellowed.

     

    CTB-See articles by Chris De Muth Jr. He's on top of the story from many angles.

     

    http://seekingalpha.co...

     

    http://seekingalpha.co...
    5 Sep 2013, 02:29 PM Reply Like
  • Yuanxi Zhang
    , contributor
    Comments (308) | Send Message
     
    Thanks for the write-up. This is very helpful! Any insights into the CVR that will be issued in the Optimer deal?

     

    PS SPRD is taking longer than I had expected, and then there's the national day vacation soon (7 days) in China, which could delay the process further.
    22 Sep 2013, 12:14 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (1425) | Send Message
     
    Author’s reply » I have a small position in OPTR via sold puts. I sold the 12 1/2 PUT for 50 cents which means my cost basis in the stock is $12. When the deal closes $10.75 will get paid and I will be left with a CVR, which will be tradeable at a cost basis of $1.25. If it were not tradeable I wouldn't have been able to enter via puts and would not be involved at all. Best case I can make four times my money but the CVR hurdles are high. I much preferred the TSRX CVR. There I have a chance at making mad money or around 15x my investment.
    SPRD-The Chinese deals always seem to take longer to close. I am also in ASIA, which is also limping along.
    22 Sep 2013, 12:53 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11101) | Send Message
     
    Coincidentally, I set up OPTR the same way. I plan on writing more about that one a bit later. As for SPRD and ASIA, I still have a bit of a hang up about Chinese equities; I have been short so many over the past five years and now that I've done most of those (typically results of US-listed shell company deals) that I plan on doing, there is no good reason to not also own SPRDs and ASIAs of the world.
    22 Sep 2013, 08:35 AM Reply Like
  • jaginger
    , contributor
    Comments (813) | Send Message
     
    Getting a nice pop on CTB today.
    2 May 2014, 09:41 AM Reply Like
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