Update on Aquila (ILA) Workout


Back in March, I wrote an analysis of the Aquila (ILA) & Great Plains (GXP) workout. Since then, the spread has been steadily closing. When I wrote the first post, the spread was at 21%. Today, that gap has closed to around 7%. Had you or I invested around that time, we would already be sitting on a nice gain of ~10% with very low risk.

What’s Been Happening

Not much to be honest. From the last Aquila post, progress is still the same. Aquila and Great Plains haven’t been able to receive the OK from the Missouri commission to close the deal. Although it’s pretty obvious by now that neither side will cancel the deal, the fate of the merger rests with the Missouri commission.

What Have I Been Doing?

I have an SEC RSS for Aquila in my reader, along with all the other companies I am interested in, which I check daily for news. As I kept monitoring the SEC filings, I noticed that many of the insiders started to exercise their options (edit: they vested not exercised). It could have been a sign that they believed the merger was coming to a close. Luckily around this time, I took a position and the price kept its slow and steady climb up to where it is now.

Next Steps?

With the new deadline set to August 6, waiting out 3 months for a possible extra 7% gain isn’t all that appealing to me. If the price goes up a couple extra points up to my sell price, I plan to offload. Considering this was close to a 0% volatility play with a return of 5-6% so far in 2.5 weeks, I would say it is working out pretty well.

As we get closer towards the deadline, if there is around 3 weeks to go with everything looking good and the spread still being around 7% I’ll definitely think about buying another position for a excellent annualized gain.

In the meantime, I’ll be busy reading a bunch of books that I bought recently and looking for the next workout. I was hoping CMLS had more of a chance but that one fell through.

  • Quint

    You mention that some of the insiders are selling their options, why would the sell with the merger so close and they would get a higher price with the merger with Great Plains. I have some Aquila options at 1.825 and 3.75 and I’m not sure if should I hold them until after the merger or exercise them now. I do have the option exchange ratio work out if that would help.

  • Hey Quint,
    Thanks for catching that. I made a mistake. Insiders weren’t exercising, they were vesting their options which they can use for GXP stock once the merger occurs.

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