Merger Arbitrage Blog

Added INVN and TRCO

Hi it has been a long time since i last updated the blog. Since then, the ChemChina/Syngenta merger had been progressing smoothly regulatory clearance from EU, FTC, China and Mexico respectively in April 2017. On 26th April, ChemChina declared that all conditions for the merger had been met and will proceed to complete the transaction on 18th May 2017 if 98% or more shares have been tendered to the merger.

With the ChemChina/Syngenta merger coming to a close, I have added two new merger arbitrage play for May 2017.

Merger Arbitrage 1:

I have been on the lookout for Invensense merger by TDK since beginning of this year. Although CFIUS approval was generally expected given that the buyer is a Japanese company, I remained more attracted by the spread on Syngenta merger during Feb-Apr 2017 and the relative confidence that I had on the successful completion of the merger. Invensense announced CFIUS and FTC clearance on 18th April and the shares promptly jumped to $12.95, with just a little bit of spread left from the merger price of $13. The only condition left is that a simple majority of shareholders (50.1%) approves the merger on the special meeting scheduled on 17th May 2017.

On 27th and 28th April, the share price suddenly dropped to a low of $12.79 with the spread widening to 1.6% and expected annualized return of about 19% for a merger that has met all conditions for closing in about one month’s time. I do not know the reasons for this drop so I can only speculate that the reason may be due to the lower than expected price received for the merger and that many shareholders are still holding shares they bought above the merger price.

The drop represents a good opportunity to profit from a short term arbitrage merger play with little risk. Although the merger price may not be high historically but it is still nearly 70% higher than the price before the merger rumors started to spread. I believe shareholders will not be willing to go back to a sub $7 price by rejecting the merger. Already, about 14.5% of shares owned by Invensense executives and officers will be voting for the merger. Major institutional owners like mutual funds and ETFs should also be voting for the merger so a simple majority is achievable. Current returns at price of $12.89 is still a good return for a merger that will be closing within less than a month and I had since added new positions at an average of $12.88. Any price I can get lower will boost my returns for little risk.

Merger Arbitrage 2:

Tribune Media is another position that I had added recently. This is still not a done deal as the merger parties are still rumored to be submitting bids. I had added when rumored news broke out that Blackstone and Fox may be partnering for a bid. This is in addition to the rumor that Sinclair Broadcast Group are leading the bidding for a price in the high 30s. Another bidder, also a major TV stations owner, Nexstar Media is also rumored to be bidding. I believe the biddings should bring the price above low 40s as all three suitors have strategic reasons to want to buy Tribune Media.

EDITED (05 May 2017):

Rumors that Bosch may have won up to 50% of new iphone’s sensor business had caused Invensense share price to dipped to a low of $12.70. I think that this is an excellent opportunity to add to my positions. Although the rumor if true is a big blow to Invensense considering 60% of its revenue came from the apple, this development is not totally unexpected as Invensense had warned as early as Aug 2014 that this event is going to happen sooner or later so Invensense buyer, TDK would have known this fact for a long time and make it hard for it to scrap the merger based on this rumor alone.

Updated: May 5, 2017 — 2:36 pm

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