2013 Review

A very quick review of the ideas presented on this blog:

RiskArb –

All deals presented closed thankfully. Deals include DELL, NXY, and SPRD

Value –

IMOS & BP worked quite well

GCOM was eventually taken over

ATNY is about unchanged and still bullish

BPY has been a very poor performer but still bullish based on discount to Book Value.

2013 Review

SPRD Merger Arbitrage

Short and quick writeup on a definitive merger, SPRD is semi-conductor company in Shanghai that is being acquired by a Tsinghua Holdings for $31.00 cash per ADR. The current deal offers the following terms:

  • Completely and Privately funded by Tsinghua Holdings, therefore no financing condition.
  • 75MM termination fee (4% of the 1.78B offer)
  • MAC clause
  • Shareholder Approval required
  • PRC government approvals required

The economics of the deal based on a $30.30 last price are as follows:

  • 2.3% gross yield, 6.59% annualized based on 90 day closing *
  • Market implied 94% probabiltiy

* As the shareholders voted in favor of the deal as of September 9th, the final hurdle to closing is PRC approval, which could happen much earlier then 90 days. At 30 days, the annualized return shoots up to 28%! One potential reason for a quick closing is shareholder resentment of a low ball offer, with a company growing aggressively some shareholders were disappointed by the purchase price.

At this point the valuation is probably mute as shareholders, controlled by the CEO and Board, have already voted in favor. As of now it is just PRC approval, here is the relevant information from the proxy:

    “Required Approvals” means certain overseas investment approvals, including the approvals of or filings with, as applicable, (i) the National Development and Reform Commission of the PRC or its competent local counterparts and Ministry of Commerce of the PRC or its competent local counterparts with respect to the consummation of the Merger, (ii) the Ministry of Education and/or the Ministry of Finance of the PRC with respect to the consummation of the Merger (if applicable) and (iii) the State Administration of Foreign Exchange of the PRC  or its competent local counterparts in connection with the consummation of the Merger, including approvals for conversion of RMB funds  into U.S. dollar funds and transfer of U.S. dollar funds to Merger Sub or the holders of Shares or ADSs or other interests pursuant to or in connection with the Merger Agreement and the guarantee from Tsinghua Holdings in which Tsinghua Holdings committed to guarantee the funding of Parent in order to enable Parent to fulfill its obligations under the Merger Agreement (to the extent that funding in U.S. dollars is required thereunder), and, if necessary, clearance under the PRC Anti-Monopoly Law approving the Merger.

The rest of the proxy is here. Also since PRC is the biggest risk, it should be noted that Tsinghau is also a state owned enterprise! I find the current spread somewhat surprising despite being a Chinese takeover, because it is hard to see the risk, comments definitely appreciated!

Edit: 12/21/13

Deal completed. http://finance.yahoo.com/news/spreadtrum-announces-receipt-tsinghua-unigroup-130000542.html

With Tsinghua Unigroup’s receipt of regulatory approvals, the Merger is expected to be completed during the week commencing December 23, 2013, subject to the satisfaction or waiver of the conditions set forth in the merger agreement.

SPRD Merger Arbitrage

BCSB FNB Merger Arbitrage

BCSB Bancorp (BCSB) is being merged with F.N.B Corporation (FNB). The 8k is here:


While the proxy has not been released yet, this is a straightforward deal that has a very high probability of closing and a very good return. The return is mainly due to low trading volume in BCSB, it trades ~50k shares per day on a good day. I was able to get a decent position on by actively trading and crossing spreads at times (i.e. lifting offers in BCSB and hitting bids in FNB) It’s not so difficult if you have a spreadsheet open though be careful of ticket charges if your paying $9.99 per trade etc.

According to my calculations, as of 7/18 the deal represents a 6.7% gross spread and 10.87% annualized yield. Arbs will receive 2.08 FNB stock per share of BCSB. I have estimated 6 months to closing. The market is implying 83% probability given a 17 break price.

[My calculations include $0.01 per share commission both ways and 2.5% margin rate]

There has been an informational brochure sent to existing clients and branches, a good sign:



Edit 7/24/13:

Just listened to FNB call, the company has stated that they are hiring people in Maryland and Baltimore which is a good sign. Sounds like leadership and some IT solutions in place. Management seemed to be impressed with the caliber of talent, mentioning it a few times. Still no word on exactly on timing of proxy etc.

I am embarrassed to miss this, I had an error on my excel spreadsheet, but better to catch it now then later; FNB pays a 0.12 dividend quarterly, so if we think 6 months, this reduces the spread by 0.24. This reduces gross to 5.7% and ~10% annualized. Keep in mind i include 0.31 in margin expense (2.5% borrow rate since using leverage) so adjust your return assumption accordingly. Rookie mistake!

BCSB FNB Merger Arbitrage