Merger Arbitrage Blog

Mid Year 2018 Review

Hi I thought I will update the blog with my mid year results since I had closed several big positions and are in the process of reshuffling my investments and accounts.

Last year I wanted to spread out my profits a bit more evenly but i failed to do so again with the eventful Monsanto trade sucking in most of my trading capital. But then again, the Monsanto trade was too good to let go and in the end I did manage a good profit.

For this 6 months, I made and closed a total of 12 trades with two outstanding trades in TWX and NXPI and one small new trade involving Tribune Media in this month.

For Monsanto, I started buying and selling in small amounts since last May and increasingly after Bayer has gotten CFIUS approval for the Monsanto purchase. The actual accumulation started during November 2017 and continued till my buying power are almost exhausted during April 2018. I had made less than I would like to due to buying quite a number of shares on the high side during Feb 2017. I didn’t anticipate the fall during March-April 2018 when DOJ demanded more concessions from Bayer so I didn’t profit much from the fall in price. Adding to the complexity is Interactive Brokers demanding 30% margins for the two biggest concentrated positions in my portfolio and I had to do a bit of shifting using options and another CFD broker. But eventually all the hard work paid off and I managed to earn a decent profit, about 13.66% for the equity portion while I still do not know how to calculate for the options side.


Fortress Investment was actually a trade from late Dec last year and didn’t made it to the report for last year and that was a decent trade too, earning 40% annualized for a period of 1 month.


Beginning of this year, I dabbled with short AKRX put options (actually earned quite a bit for the Jan options and proceed to lose them all in the Mar options) which eventually lost money due to Fresenius’s lawsuit. It’s a mistake on my part believing in the “ironclad” merger agreement and the assuring language from Fresenius’ press reports. AKRX has been tainted with fraud by its ex-chairman and the whole culture is a little bit suspect and this gave Fresenius some meat for the termination of the merger. I still think Fresenius is blowing up the whole thing just to get out of a deteriorating merger target so best of luck to whoever still holding ARKX for the lawsuit!


More activities in Jan 2018 as I made a quick and sizable trade with rumors surrounding JUNO’s buyout and within a week, the rewards came in and hence the amazing XIRR figures! Also made a little bit with by selling BIVV put options. With rumors sometimes you lose too, as it seemed quite certain Bunge is going to get bought out by ADM since quite a few of their businesses fit each other especially for ADM to expand in South America where Bunge is strong. However, ADM never made the move and I cut my losses quickly one week later.


Had quite a number of things that distracted me during March to May where I travelled to China, falling sick when I came back and got sick again after recovery. I kept my Monsanto position throughout this period and busied myself with adjusting for the Interactive Brokers new margin rule (basically they gave one week’s notice and progressively increased margin for another two weeks till the new level).


In May, new opportunities came with the trade spat between U.S and China and ZTE issue affecting Qualcomm/NXPI merger progress in China. I started a position in NXPI plus some chip mergers like MSCC’s spread was increasing due to fears of U.S/China trade issues affecting these mergers. That was when I bought in a position in MSCC. Opportunities always present itself when crisis arises so I gladly took this gift and the merger closed by end of May.


Strangely, a biotech merger AVXS’s spread also increased during this period. This company is being bought by Novartis and there is very little antitrust issues. There are some fears that AVXS’s new drug report is coming out near end of April but the language in the merger document already specified that clinical failure is not a reason where Novartis can back out of the merger.  So the market is giving out a gift again and I gladly took it and the merger closed within weeks in early May.


Another merger where I analysed and concluded that the risk is minimal is WGL’s merger with Altagas. Altagas had already gotten 2 major regional approvals plus all other regulatory approvals and are left with Washington D.C region which is a relatively small market for WGL to approve. Following the pattern for Maryland’s approval, Altagas was negotiating for a settlement when the spreads increased. I decided the chances of success outweighs the chances for failure and when in with a medium position, earning 64% annualized profit. Washington D.C eventually approved the merger less than a month later.


During the April-May buying spree, I also invested in the General Cable and Validus mergers. General Cable was another close to completion merger that I thought had a very high chance of completing. Close to completion in end of May, some rumors came out that General Cable was under investigation for bribery by DOJ. The stock promptly crashed 5% but as I was asleep at the helm (due to time zone difference) when it happened, I didn’t have the chance to react and the next trading day, the company came out to clarify that the investigation was from last year and had already settled with DOJ. The stock price recovered near its unaffected price and I sold, not wanting to risk any sudden moves in this name. Eventually General Cable’s merger was closed in early June. I closed Validus as I thought the profits are very little and I wanted to re-align my trading positions.


Going forward, I am still holding my positions in TWX since last year which I think can at most break even and NXPI which I think there is a good chance of success by July 2018.



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