Merger Arbitrage Blog

Market Turmoil And Opportunities

The market turmoil on 2nd Feb (Friday) and subsequent drubbing on 5th Feb (Monday) presented me with some opportunities to add to Monsanto as it dropped from $122 to $119. As Brazilian antitrust authority CADE will be ruling sometime around this month, probably followed by EU in early April and DOJ in the same month, merger spread for Monsanto is expected to narrow significantly if these antitrust regulators approve the merger, especially EU and DOJ. While the end result cannot be accurately predicted, but we can based on the experience last year where ChemChina/Syngenta and DowDupont mergers gained approval and given that Bayer is willing to give significant concessions and make necessary divestitures, there should be a high chance of approval.

Which brings me to my short Put options trade in end of January. These trades are taking large chunks of margin which I could have used to buy more Monsanto at $119. The riskiest trade should be in JUNO as the strike price is near $85 vs $85.50 share price so there is a higher chance of the trade turning sour if market continued to deteriorate. Hence I bought back most of my JUNO options to buy more Monsanto.

For those who are short JUNO puts but have no other better targets, do stick to this trade as the option expires next month if the merger has not been completed by then. If you got assigned the shares, JUNO at $85 is still a reasonable 2.3% spread to wait till merger completion.

At the same time, I had taken a minor speculative position in Bunge Ltd. ADM is rumored to be in discussion with Bunge for a merger.

Updated: February 7, 2018 — 6:30 am

Leave a Reply

Your email address will not be published. © 2016 Frontier Theme