# Merger Arbitrage-- what are resources out there?



## Value (Jul 31, 2015)

Hi all,

This year, I have gotten quite interested in playing Merger Arbitrage... I have jumped in on some names (post purchase agreement announced) and have been doing quite well with those (although the sales haven't been closed yet, so I have my fingers crossed). 

Anyways, I was curious to know if anyone had some resources when it comes to this strategy? *A website with a list of companies being bought on the TSX or such?? Where one could find articles or updates on some titles and where you can find the new announcements?* Some of those Arb opportunities are on very small cap and ignored names, so one could completely ignore those opportunities. 

I found this site for US names : http://www.sinletter.com/category/merger-risk-arbitrage/

I was wondering it there was something of that sort for the TSX out there? Or do you know of someones obscure blog that uses this strategy?

Any help would be very appreciated!

Thanks yall.


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## Value (Jul 31, 2015)

Well that was a fail...

Bump... 

I suppose it could be a site on event driven investing in general.

Any help would be great!


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## humble_pie (Jun 7, 2009)

not so much a fail as the likelihood that there are no public resources providing advance M & A info in canada.

value, look at the names of acquirees in your Sinletter for the US. Most of those are small companies. A few, like atmel, are midcap.

stalking those small caps, getting to know them as intimately well as an insider, having expert knowledge of all the players in the sector, understanding the business plans of all the bigger fish in order to know which big fish might find which smaller fish an especially tempting fit - this is a challenge for specialized analysts imho. It's why the M & A dealers are so highly paid. It's exotic stuff.

i don't believe it's an area where small retail investors can amass the requisite analytic skills. For example, companies putting themselves in play will have official or unofficial data rooms. But there are zero chances a small retail investor would ever be invited inside for a look/see.

occasionally, totally by accident, i find myself in a small stock buyout situation. At the moment i have bankers petroleum, which trades in the 1.80s range & has received an all-cash offer to buy at 2.20 from a chinese oil company.

this spread is huge, yet the market is not filling it. The market, in fact, is shrugging off a possible BNK buyout with a yawn. I've been wondering what the explanation is & i found a partial explanation in your Sinletter.

your author writes that announced deal merger spreads by the arbitrageurs are wider than they have been in years. But only, he says, for the mergers with regulatory risk, in the energy sector or Chinese going private mergers.

the bankers deal involves a private chinese company with regulatory risk in china & in canada. Who knows, perhaps even in albania where bankers' oil properties are located.

there is probably more explanation as to why there is such a big spread in BNK buyout pricing, but the above is at least a start. Many thankx for your link.


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## Value (Jul 31, 2015)

Hello Humble, I'm glad I can count on your to entertain my very unpopular most and keep them running. You're a real sport!

If such a resource doesn't exist for the Canadian market, I suppose it would be an idea to try to create it (a web page or a blog). That would give one the excuse to me aware of all merger activity in the Canadian equity market. Too bad I don't have much free time and my writing is horrible!

I don't think we are talking about the same thing pie. I am not interested in building a portfolio based around upcoming potential mergers. That, indeed, involves a whole lot of work and a fair share of speculation and risk... I am more interested in putting money to work when a deal as already been announced and there is a spread to be filled. Exactly like in the BNK case. 

Pie, the spread that exist is due to 2 things :
1- the remaining risk that the deal does not close
2- the time factor that one would have to wait for the deal to close and the money to be transferred for the shares.

You already elaborated on quite a few good reasons why there is still risk and uncertainty in this example involving BNK... Other would be that shareholders vote against or some big shareholder not approving the deal and actively fighting against it. Or more importantly, a failed financing from GEO-Jade (the Chinese buyers). For sure the situation with the Albanian government probably doesn't help either. 

If you want my opinion however, I don't think BNK is such an interesting Arb opportunity presently. Somehow, 20% upside for this deal is not a lot. I have been buying into other deals offering similar risks (or even much lower) and offering betting upside returns or similar. Anyways, it seems to me that the situation for BNK was much more publicized and the day following the announcement, the shares moved to the 1,68ish range all the way to the 1,80 to 1,85 where it's still at now.

I personally do not have a position into BNK, but I am thinking I can ride other deals first and then move it to Bankers if there is still a good opportunity for a 20%, perhaps when the risk will be less... That, however, remains to be seen.

Anyways, thanks for your reply Humble.

If anybody knows of other companies being bought out, please let me know.


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## Value (Jul 31, 2015)

Anybody interested in chatting all things Arb related, I'm right here...

My investing profile in now heavily into this strategy and it's working out quite nicely.

Anyone with the same interest, let me know.


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## Nerd Investor (Nov 3, 2015)

Sounds interesting, I'll be following the thread and contributing where I can. It's not tied exactly in to what you are doing but have you read Deep Value by Toby Carlisle? I think you would enjoy it.


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## jerryhung (Mar 28, 2011)

Value said:


> Anybody interested in chatting all things Arb related, I'm right here...
> 
> My investing profile in now heavily into this strategy and it's working out quite nicely.
> 
> Anyone with the same interest, let me know.


We'll share if you share 

I started when INTC bought ALTR, then got into this semi-officially, but BXLT and APOL have been great for me (roller coaster rides though)

TSX side - nothing, lucky on MBT (BCE $40 offer)


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## Eclectic12 (Oct 20, 2010)

Value said:


> ... I am more interested in putting money to work when a deal as already been announced and there is a spread to be filled.


Are there that many?

Most that I have been affected by, the offer did not change ... the stock price wavered a bit depending on whether the idea of other suitors was out there but in general, after close the buyout offered anywhere from a 10% to 35% premium over the previous days close so there wasn't much opportunity as the next day's opening was pretty much at the level of the offer.


Cheers


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## mars (Mar 11, 2014)

The only one I can think about is CUS which is in the process of being taken over by SPB. However, I believe the current arbitrage is only about 10% to 15%. From last reports the deal is only waiting for one more approval and they are expecting it by the end of the 2nd Q.


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## Spudd (Oct 11, 2011)

BNK is being taken over for $2.20/share, currently sitting at 2.05/share.


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## humble_pie (Jun 7, 2009)

^^

do you have bankers petroleum Spudd? i have some shares & posted upthread about the big gap from market to buyout price at that time. BNK was around 1.80-1.90, iirc. That was a huge spread, suggesting doubt or disbelief about the takeover.

one can see Value upthread, turning up his nose at a possible 20-30% arbitrage profit in bankers pete.

but me i'm content to wait it out. Shares have moved to north of $2 as knowledge spreads.


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## Nerd Investor (Nov 3, 2015)

Just thinking here, as a resource to find these types of situations, what about using Google alerts? Alerts on "Merger" , "Takeover" , "Acquisition" , "Buyout" etc.


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## Spudd (Oct 11, 2011)

humble_pie said:


> ^^
> 
> do you have bankers petroleum Spudd? i have some shares & posted upthread about the big gap from market to buyout price at that time. BNK was around 1.80-1.90, iirc. That was a huge spread, suggesting doubt or disbelief about the takeover.
> 
> ...


Yup, I bought some when it was much more expensive, unfortunately, then averaged down to the point where the $2.20 takeover price will be a small (very small) profit for me. A few weeks ago when it was languishing at 1.90-ish I put in a few more thousand dollars which I hope and believe was a good idea. 

I had forgotten we already discussed it in this very thread. I normally skip to the first new post which means sometimes I forget former context.


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## humble_pie (Jun 7, 2009)

^^


bankers' option series cease this july, as the stock is set to disappear if the buyout goes through.

the july $2 calls are bid .15, ask .20. Sizing here is significant. There are 60 contracts bid, representing 6000 shares. But there are 160 contracts offered, representing 16,000 shares.

the ask figs are suggesting to me that parties are willing to sell at 2.20, which is the buyout price. They're expecting a nice premium over today's 2.05. They'll receive .20 for selling the call, plus 2.00 when the call is exercised against them as the deal closes.

on the other hand, if perchance the deal does not go through, at least they will have 20 pennies in the pocket, even though the share price itself would then likely fall back.

my take on the july calls is that there is reasonable expectation the deal will go through. By & large, folks are expecting 2.20. They're not panicking or shaking down the option market.


EDIT: i should mention that the july 2.50 calls have no bids. Zero. Not one person anywhere on the planet expects there could ever be any price in bankers that'll be better than 2.20. Even the dealer is not willing to show a bid price.

2nd EDIT: one could, theoretically speaking, buy several thousand shares at 2.05 while selling july 2 calls at .15, thus paying net 1.90. If the buyout deal goes through one will be called out at 2 for a return of roughly 5% in one month.

to my eyes this return is a bit too rich, so it's suggesting to me that, while the conservative majority does expect the deal to close at 2.20, nevertheless there is a sizable minority that sees a risk of deal failure.


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## Value (Jul 31, 2015)

Hey all, wow, lots of answers nice!

Nerd Investor, I have lots of respect for Toby Carlisle, he’s got a great head on his shoulders. I’ve spend considerable amounts of time listening to him on youtube and we are friends on facebook (for what it’s worth- haha). But Toby is invested into deep value stocks with positive net cash value, I’m taking about event driven investing… Completely 2 different things… I currently have place in my portfolio for the 2 strategies… I try and keep a balance of about 80% from merger arb and 20% for deep value stocks. If you want a list of some Net-Net stocks I have positions in, let me know, I’ll gladly share with you. My investing profile was initially driving entirely by value and then by deep cash value. But I’ve taken a liking to merger arb and event driven stocks. Your second post suggest you understand the difference… I will act upon your idea… Not sure how it works, but I’ll definitely look into it! Thanks from the idea, I really appreciate it!

Jerry, I’m glad to know you have been fortunate enough to benefit from a few mergers in the past (and ongoing)… But the names you are referring to are huge market cap stocks. I’m less interested in these as they offer EXTREMELLY little returns and they have BIG downside potential with lots of risks as they get major attention from regulators… I’m looking at micro cap size to medium size, but anything above 1 billion in market cap is a totally different ball game. See my answer to Electric for some interesting names. 

Electric, there are a few ongoing… My 2 favorite at the moment are PMI (petromanas energy) and ARL (Africo resources limites)… I have recently been paid from Sunridge Gold Corp… and reallocated most of the cash to PMI at 8 cents a share… The company is making a special distribution for 8 cents a share… It’s a no brainer! I use to have a big position in LRE… Both it at a great price and benefited tremendously from it, but with about 15% left to gain and the regulatory worries from investment Canada, I’ve dumped that one and locked the profits. The downside on it is just too worrisome. ARL is more of a gamble… You get a relatively safe little return and a chance on huge returns within a year, but with no guarantees.
Mars, thanks for sharing… I wasn’t aware of that deal… Could be interesting, but Stock offers are never as good as cash offers because of the variation risk in the buyers title. Unless you short it and cover with the purchased company. Little more complicated, but still offers decent opportunities… From my math, the current upside on the offer is 7%. If they close in Q2, that means 7% in about a month… Not too shabby. 
Spudd, BNK is one of the more know deals out there. As Humble mentioned, I’ve overlooked it in the past… I might be regretting it now slightly… I was waiting for a dip that never really happened. I had decided to put more capital working into SGC which offered a great profit as well, with less risk, so I do not regret it all that much actually. For what it’s worth, I think BNK still holds more risk that one would think from the potential upside… I’m still glad you two were able to benefit from the deal! Feels like taking candy from a baby uh? ^^


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## mars (Mar 11, 2014)

This isn't really an arbitrage play but it might be of interest to some people. EFN is planning to split their company into two separate companies in September I believe. Some analysts have one of the companies valued between $15 and $20. With the current share price in the $15 range, this means the second company is valued at $0. Supposedly they are splitting because they want to unlock this value. Like I said at the beginning, not quite the same but something to look at. I have been looking at it and watching the price but haven't bought in yet. I may take a shot later in the summer closer to September.


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## Value (Jul 31, 2015)

Thanks for Sharing Mars...

I know in the US markets, major player AA (Alcoa) is looking into the same strategy... Expectations are for this to happen in October...

Might be a good idea to get a position in August or September... Then again, who knows what to expect from the Aluminium market while you're waiting.


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## stantistic (Sep 19, 2015)

MBT is being taken over by BCE.


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## Nerd Investor (Nov 3, 2015)

Value said:


> Hey all, wow, lots of answers nice!
> 
> Nerd Investor, I have lots of respect for Toby Carlisle, he’s got a great head on his shoulders. I’ve spend considerable amounts of time listening to him on youtube and we are friends on facebook (for what it’s worth- haha). But Toby is invested into deep value stocks with positive net cash value, I’m taking about event driven investing… Completely 2 different things… I currently have place in my portfolio for the 2 strategies… I try and keep a balance of about 80% from merger arb and 20% for deep value stocks. If you want a list of some Net-Net stocks I have positions in, let me know, I’ll gladly share with you. My investing profile was initially driving entirely by value and then by deep cash value. But I’ve taken a liking to merger arb and event driven stocks. Your second post suggest you understand the difference… I will act upon your idea… Not sure how it works, but I’ll definitely look into it! Thanks from the idea, I really appreciate it!
> 
> ...


Ya, I understood it didn't directly relate to what you were looking for. I've tried the google alerts thing, seems reasonably simple. I think the problem will be choosing the terms to include to find the sweet spot between picking up enough news and not getting a ton of unrelated topics. 

@ stantistic: I was just reading up on the MBT thing, seems ISS is recommending shareholders vote yes for the takeover. Might be a nice way to scale into BCE at a discount (or take a small profit).


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## humble_pie (Jun 7, 2009)

.
re the bankers' pete buyout. A few days ago BNK shut down production at its main albanian fields. Temporariy, they said. Because all storage capacity at the albanian port terminal is already filled, they said. Either BNK doesn't want to sell its oil now or else is not able to raise a price that it likes.

might the shut-down put off the chinese buyout? might they come back to re-negotiate the original 2.20 buyout price?

meanwhile the july $2 calls have dropped by a nickel, indicating players are pricing BNK slightly lower.

.


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## Spudd (Oct 11, 2011)

They announced today that the production is back on. 
http://www.bankerspetroleum.com/inv...sumption-operations-and-corporate-transaction


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## allmic (Jun 8, 2016)

*BNK*

Hi all I am a newbie in this area and very much enjoyed your posts I have already bought into bnk and am looking at cus. Just wondering how you guys confirm eps ttm I notice there is discrepancy between what is shown in yahoo financials and my rbc information.

thanks loads


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## humble_pie (Jun 7, 2009)

Spudd said:


> They announced today that the production is back on.
> http://www.bankerspetroleum.com/inv...sumption-operations-and-corporate-transaction



yes ... saw that ... the shut-down was only 3 days ... a mere hiccup ... not worth putting out a news release let alone 2 news releases ... was resumption of production & shipping caused by a whisper of complaint from the buyer?

the deal has passed the alberta courts & now awaits approval from the state governments of canada & china. No reason to believe either would withhold approval. Evidently closing of the deal has been postponed to late june or early july.

i still can't figure out what is causing those negative 20 pennies. In a time of high interest rates the discount would be understandable, but we're in opposite times. Too much money, no interest payable.


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## Spudd (Oct 11, 2011)

humble_pie said:


> i still can't figure out what is causing those negative 20 pennies. In a time of high interest rates the discount would be understandable, but we're in opposite times. Too much money, no interest payable.


Yes, it's making me nervous too. But I will remain firm!


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## humble_pie (Jun 7, 2009)

i'll stay with your firm resolve. The option quotes today are looking a tiny tad stronger.

the july 2s are still 10 cents bid, 15 cents offered, no trades. But there are 744 contracts bid while only 60 offered. This suggests that the market thinks the play will continue with no strong upset in sight.

https://www.m-x.ca/nego_cotes_en.php?symbol=BNK*


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## jerryhung (Mar 28, 2011)

E^R#%$%
just my luck

HTCH (on USA)
day low $3.50-$3.83
have a $3.5 limit order x 2000 shares, didn't fill
and now on now news it +7% (probably got FTC approval)
yep, I missed out on 2000 shares x $0.3 = $600 profit in few hours
That would've made my day, in a sea of red

Obviously the ones I bought all go down after, like FGL (due to Anbang issue), that's still like 15% arbitrage for $26.8 BO vs. $22.8 now..


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## Value (Jul 31, 2015)

Hey all,

Was happy to be in te relative safety of merger Arb this Friday when the news of the Brexit hit the north american markets.

I finally ended up purchasing some BNK after the investment canada approvals...

LRE also moved from the Canadian approval and moves up quite a bit as the risk lowers to the deal.

Other deals to be on the lookout for : 
NXX
MGO

RMC and NSU just closed.


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## mars (Mar 11, 2014)

Well looks like SPB to buy CUS fell apart. Hopefully no one got burnt too badly on this one. I took a small hit.


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## Value (Jul 31, 2015)

It did not affect me...
And I'm just gladddddddddddd the LRE deal is done... Ka-ching!


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## Spudd (Oct 11, 2011)

BNK is now a done deal! Yay!


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## Nerd Investor (Nov 3, 2015)

Apparently Monsanto and Bayer finally agreed to a $66B asking price. This translates to a purchase price of $128 per share of Monsanto which is currently trading at just over $107. Nearly a 20% premium.


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## Value (Jul 31, 2015)

Hey all, just figured I would pass by and say hey to everyone!

Congrats on all those of you who held on to BNK and made a few bucks... it was long but they finally managed to close it...

I currectly have money invested in RB

And it 2 liquidation opportunities with KRI and AEN...

If anyone as some deals to share, I am all ears!


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## jerryhung (Mar 28, 2011)

Value said:


> Hey all, just figured I would pass by and say hey to everyone!
> 
> Congrats on all those of you who held on to BNK and made a few bucks... it was long but they finally managed to close it...
> 
> ...


Ha, I only have those MAarb for now, all around 8%

MBT.ca $40 BO by BCE

USD, all around 8%
FGL - Anbang BO still iffy, 17% upside
VA - $52 now, $57 BO price
IM - $36 now, $38.9 BO price

May re-buy APOL ($8.x now, $10 BO price)...


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## jerryhung (Mar 28, 2011)

jerryhung said:


> Ha, I only have those MAarb for now, all around 8%
> 
> MBT.ca $40 BO by BCE
> 
> ...


did re-buy APOL at $8.5 (after Q3 ER big beat) for $10 BO hopefully by yearend

LNKD is ~4% arb now..reports Q3 ER tonight, wonder if I should go in for a quick 4%


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