On February 16, 2016, security firm ADT Corporation (NYSE:ADT) announced its sale - confirmed unanimously by its board of directors - to an affiliate of the investment firm Apollo Global Management for $42.00 a share. The closing of the transaction has been set for June 2016, pending regulatory approvals, etc. In my view, the security market is so decentralized that there will be no antitrust issues with this deal.
The shares have recently been trading for under $40.00. An arbitrage opportunity exists for those willing to risk the deal unwinding. On the other hand, the deal includes a "go shop" term which allows ADT to be shopped around for 40 days, to see if a higher bidder can be found. That was a smart move by the board, I believe. Even though the chances of a higher bidder appearing are small, I welcome this possibility.
With my eyes wide open, I bought 2,000 shares of the stock yesterday at 39.75, and am willing to hold on to them until the sale closes in June. If that happens, the ROI will be approximately 5.56% (2.25 gain divided by 37.75). In addition, there should also be one last dividend payment of .22 cents before the closing, if ADT's dividend history is a guide. The dividend is not confirmed, however. One needs to subtract the trading costs to figure the net gain if the deal closes, but if one trades on a low-cost platform like Fidelity, the effect on the return is minimal.
I made the purchase in my IRA account to avoid taxes on the possible gain, at least for now. Normally, I do not indulge in such speculation; however, with plays as obvious as this one, I could not resist!
Disclosure: I am/we are long ADT.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.