List of Merger Arbitrages for 2009

Be Highly Selective With Merger Arbitrage

My assumption is that successful merger arbitrages will be hard to come by in 2009. Quite simply because banks are unwilling to finance deals, companies are less willing to use their own cash and takeover prices will be reassessed and most obviously, there is too much uncertainty..

Take a look at PSD and the 10% spread remaining. The risk of the deal failing is minuscule. Odds of 9-1 in my favor, yet the market is scared of something.

So this IS the good news. These conditions have widened the spreads of arbitrages starting September of 2008. Since I visit a list of pending mergers in the US regularly, I’ve definitely noticed the list getting shorter.

The following is a list of pending mergers as of Jan 8, 2009 courtesy of Merger Investing.

SymbolAnnounced DateClosing ValueLast PriceClosing DateProfitAnnualized Profit

The spreads have closed on many of them since 2008 but there are some where the spread seems to be due to an overreaction.

One merger I started looking into today was EMAG. There is a 45% spread and most would immediately believe the deal to fail, but some other details and the contrarian in me tells me that this is an interesting play.

ROH is another potential deal and we know that Dow Chemical wants the merger. With a 30% spread, the recent pull out by Kuwait could actually have been a good thing IF the price is not lowered.


I hold PSD at time of writing.

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57 responses to “List of Merger Arbitrages for 2009”

  1. Jae,

    That’s a very nice list of merger arbitrage opportunities for further research. I still hold ROH, but for some reason I doubt that the merger would take place @ $78 as previously expected.

    What is your take on the ROH/DOW deal?

    Dividend Growth Investor’s last blog post..Dividends and The Great Depression

  2. Jae Jun says:

    I haven’t had a chance to look at the deal in detail but since they have all but 1 approval remaining, from a process orientated point of view, DOW may be pressured to complete the deal. I’ll have to read the proxy before offering any comments as I probably wrong.

  3. This is a high chance of the ROH price being lowered… but the deal will probably close.

    I’m not sure why PSD is still trading this wide. I would add to it but I’m already way over the limit I set for risk arbitrage transactions (mostly it is over the limit becaues the rest of my portfolio has collapsed so these positions are big for me now 🙁 )

    EMAG is intriguing but it looks like it will have difficulties closing. Just took a quick look and I don’t know what’s really going on there. An earlier article says that the bank seems to have pulled the financing but an article released 5 days later says they received financing. Seems weird. Doesn’t mean the deal won’t close but it’s not as straightforward when it comes to financing…

    Sivaram Velauthapillai’s last blog post..Is the market cheap based on short-term P/E?

  4. Ken says:

    I have been keeping my eye on the Inotrac deal. If GSI’s stock price is below 11 bucks when they vote on it, then INOC can ask to leave the deal at which point GSI can try to make up for it with a better cash offer or they both walk away. For a while INOC was trading below even just the cash portion of the buyout.

    Ken’s last blog post..PSD: Dividend announced

  5. JJ: I would tend to think the merger will happen, but probably not at $78. If it happens at $78, I would be running scared of DOW due to debt load.

    Dividend Tree’s last blog post..Dividend Portfolio – My Performance Matrices

  6. Tristan Luckett says:

    I bought the ROH FEB 65 Calls @ 5.20 Im up a little, but I am thinking about just getting out.

    ROH was up big today and the options actaully traded down.

    Any thoughts?

  7. Jae,

    Nice work! This gives everyone a nice starting point for further arb potentials.

    stockmanmarc’s last blog post..Eddie Lampert Pulls A Coup d’etat Over Other Retailers!

  8. Jae Jun says:

    @ Tristan
    I have no idea about option strategies as I’ve never done it myself. But if you are unsure, isn’t it always better to get out rather than constantly feel uneasy?

    @ Stockmanmarc
    Any arbs you’re interested in?

  9. MKL says:

    PSD: The deadline has passed. Who is this Australian/Canadian “consortium”? Is it MIC, Macquarie Infrastructure?
    1) I do not understand why, if EXC wants NRG at 26.43, has the money itself or has the financing, that it doesn’t just buy it on the open market?
    2) EXC has 46% of NRG. What percent of the stock outstanding do they need to complete this deal? Is it that at 51% they take over the board and vote for a merger?
    3) EXC has offered 0.485 of an EXC share for each NRG share tendered. EXC at $54.49 = $26.43.
    4) I just don’t understand why, if EXC is so intent, why this hasn’t happened already.

  10. I have been following ROH/DOW, mainly because my neighbor works for ROH, but have yet to take any position

    stockmanmarc’s last blog post..Roundtable Experts You Decide

  11. Tristan says:

    Jae I have been taking a peek at EMAG. Do you have an opinion at this point?

  12. Jae Jun says:

    Here are my reasons for why I looked into it in the beginning. Hopefully I’ll get around to writing about it. I don’t have too much detail though.

    1. Emageon to get $9M if buyout falls through

    In the event of a cancelled merger, EMAG will have $1.32 cash per share. At current price of $1.89, I have to figure out whether the company is worth $0.56, which at this point I believe it is.

    Also, an increase of $9m to a $40m market cap company is a huge jump.

    2. This deal is the best thing for EMAG. The company has been burning cash so quickly it needs to get bought out. I don’t believe it can survive on its own.

    3. From press releases, it seems like HSSO also wants to complete the deal.

    4. Financing is the only reason I see for the 40% spread. Before the financing was first withdrawn, the spread was only 14%. Now everyone is scared. Perfect opportunity if the risks are weighed properly.

  13. Tristan says:

    Thanks in the EMAG…I saw all that info…..we should talk sometime over the phone!

    I sold my ROH calls made 10% on then in two days. Preservation of capital in always my primary concern so I am glad that did.

    Started to nibble on the EMAG today!

  14. Jae Jun says:

    I still havent weighed up the risks and probabilities yet so I haven’t bought anything.

    Initially I think the risks are 60-40 of the deal going through which means if I do buy, it would have to be a very small position.

    The big risk for me is that the company is not the type of business I want to hold if the merger fails.

    PSD I dont mind holding because utilities are stable and they offer a dividend. EMAG will drop probably 35-40% which is a significant downside.

    Jae Jun’s last blog post..Forbes Best Small Companies: Part 5

  15. Andrei says:


    Not sure if you’ve seen this with regard to EMAG and the merger–


    I have been taking little bites of EMAG in the last week as it trades in the 1.80-1.90 range–I like the boost to cash per share should the deal not go thru. I think the 50 cents per share price for the business is reasonable. If this merger doesn’t work out do you think someone else will step in as an acquirer?

  16. Jae Jun says:


    I’ve read something similar but nothing so recent. Good info!

    As for the content, it’s what I’ve been leaning towards and since I believe price is just a tool and not an indicator, the spread should not be anywhere it is now. Maybe a 20% spread but 50% is ridiculously overly pessimistic and cautious.

    I just need to do some more reading and organise my thoughts, which I will post, and I “may” start taking positions.

    As for what happens if the merger fails, Im fairly sure that HSS wants to complete the merger so its just a matter of whether there will be another bank willing to finance.

    Since HSS is doing an all debt buyout, i.e. not using any of their cash, it may be harder to find another willing bank. So in the event that it fails, I would probably sell out.

  17. Tristan says:

    Jae thanks for the update and yes I did see that and I am long now. So we will see only time will tell.

    I sold my ROH calls for a profit and might buy some further.(Still thinking about it righ now)

  18. Paul says:

    Great article. I was curious on your thoughts on NNDS and CPHL. I noticed your article on EMAG. But I wouldn’t wish to hold EMAG so I was less interested in that arb play.

    I like CPHL because financing didn’t seem to be an issue and there were limited regulatory hurdles.

  19. Jae Jun says:

    Considering NNDS has a 6% spread and CPHL has less than 1%, I personally don’t invest in these mergers. The market may perceive it as less risk, but to actually make a profit after fees and taxes, I would need far more money than what I have.

    EMAG certainly isn’t a good company to hold but with what is going on, the spread is grossly mispriced and the actions to follow, should SIBL back out again, would be a headache for HSSO and SIBL.

  20. Paul says:

    Thanks for the response. My interest in CPHL and NNDS started when spread was higher around 10%-12%. I had intended to get into CPHL after I had sold out my PSD positions. But I never pulled the trigger. Instead I bought more PSD when it started to trade back down around $28.75.

    I was also interested in EMAG and I thought that your analysis was excellent. But it was the high spread that scared me. I assume that market usually knows more than me and I always avoid spreads greater than 20-25%.

  21. Jae Jun says:

    If you got in when the spread was in the double digits, that’s awesome. Unless there is more than a 10% spread I don’t look at it because I prefer to find the mergers where the market is completely overreacting and unaware of the real information.

    I’ve made just over 30% on the PSD deal and hopefully EMAG will serve me well.

    As for the market knowing more.. I think that when it comes to mergers, it knows much less and in this economy, it knows even less.

  22. My EMAG trade is working out nicely anyone else get long?

  23. Jae Jun says:

    We’ve been having a good discussion on this post. It’s working out good so far but we’ll have to see.

  24. MKL says:

    The spread is clearly important. But I have been trying to look at the total profit I can find in what time frame (reasonably prefigured which is not always exact) so a 10% spread might actually yield more dollars for me than a 30% spread depending on the price of the purchase and the timeframe.

  25. John says:

    Any chance of you updating your list of mergers and spreads? I found this website a few months ago when I was doing research on PSD and have really enjoyed the discussions and content. I am also involved in EMAG right now and am looking for my next arbitrage play. I have always stuck to cash deals and try to avoid tender offers so the only decent spread that I can see right now is ALDN. Anyone have anything better they would like to share?

  26. Jae Jun says:

    Hi John,

    The latest list has been updated.
    I like cash deals myself. Since I only get involved once most of the risk has been mitigated, I may have to wait a while before the next mispriced opportunity comes along.

    Thanks for reading and adding to the discussion.

  27. Jae Jun says:

    @ MKL
    True. I wouldn’t want to hold a position if the timeframe was 6 months or so with 30% profit. 10% in a few weeks is a much better deal.

    But I also big positions when the spread is greater than what I perceive the failure probability to be. e.g.
    ILA at 20% profit with a failure chance of ~ 10%
    PSD at 30% profit with failure chance of less than 10%.
    EMAG at 50% profit with a failure chance of less than 25%

  28. MKL says:

    Jae Jun, at the beginning of this article you thought that merger arbitrages might be hard to come by this year. In early January I had the same sense. Now, however, I think that I was mistaken and that they might have periods of happening faster than we can blink. Companies will need to merge, to consolidate assets, share debt and cash generating operations just to maintain viability, let alone growth.

    I am happy I found your site. I found you on accident when I was looking at MIC and have been checking back in daily. I love your posts, your commentary, and the nature of the commentary you seem to attract. I had never done arbitrage before but I LIKE it!!

    I am still exploring, having some waiting time on my hands before I get to make another move. I’ve been fascinated with the DOW/ROH transaction, and the implications for each company as well as for the industry, not to mention the magnitude for the shareholders/players involved. It is far too risky for me to take a position, but it has been fascinating for how informative it has been with its dramatics. As much as we would like to play down risks, measure them, settle them and gauge them, there is always the wild card.

    I look forward to more here. Thank you everybody.

  29. Jae Jun says:

    You may be right about that. With the recession, companies may be more eager to achieve growth through acquisitions and consolidation such as the bio sector.
    Out of curiosity, I compared the merger announcement numbers.
    Oct 2007: 18
    Nov 2007: 12
    Dec 2007: 22
    Jan 2008: 20
    Feb 2008: 16

    Nov 2008: 6
    Dec 2008: 8
    Jan 2009: 16
    Feb 2009: TBD will be interesting.

    Im thankful that you’ve been contributing great thoughts and questions as Im sure everyone else is benefiting as well. I just provide the medium where people can discuss and pick apart my ideas. Has sped up my learning curve incredibly.

  30. John says:

    This board has really brought out some bright minds and ideas for arbitrage. I am really enjoying following it. I’m curious if anyone is following the ANL deal. The tender offer expired last night and was extended today until Feb 17. The press release said that “certain of the conditions for the closing of the tender offer remain pending.” 93% of the shares have been tendered and if I have read the offer correctly only 88% of the shares need to be tendered for the deal to go through. Does anyone know what the hold up is as this could present a decent opportunity with the stock down today. I would usually avoid tender offers because it is so difficult to know when they will actually close, but with the number of shares already tendered in this deal, at least that part of the agreement is satisfied.

  31. Jae Jun says:

    Thanks for the idea John.

    I’ll have to take a look over the weekend because I havent done any sort of reading on this.

    Is there a specific date that I have to purchase by or it doesn’t matter until Feb 17? With a 7% spread before fees, timeframe works out great if I can buy after the EMAG deal on Feb 11.

  32. Hello Guys,

    $DOW/$ROH arb play
    If and when it goes through, that $DOW could possibly sell off certain assets

    just my 2 cents

    STOCKMANMARC’s last blog post..Can Kraft Feed Buffett’s Appetite?

  33. MKL says:

    Good morning, I looked into this quickly yesterday and found a post from a law firm which was trying to start a class-action suit. That post is no longer there, but this one is:

    Two shareholder lawsuits have been filed on behalf of investors in American Land Lease (NYSE: ALN) are seeking to stop a Chicago private equity firm’s $428 million acquisition of American Land Lease. The plaintiffs allege that American Land Lease’s board of directors breached its fiduciary.
    If you are currently hold American Land Lease, Inc. (NYSE: ANL) you have certain options and you should contact the Shareholders Foundation, Inc immediately!

    So my interest stops there for now.

  34. MKL says:

    FOR is $10.50 and Holland M Ware is offering $15 per share. That registers at 42% on my calculator.

    Forestar Group, Inc. Receives Unsolicited Letter from Holland Ware
    Monday, 2 Feb 2009 02:51am EST
    Forestar Group, Inc. announced that it has received an unsolicited letter from Holland M. Ware in which he stated that he is prepared to make a cash tender offer for any and all shares at $15 per share, under certain conditions, including support of the Board of Directors for the tender offer and mutual agreement on related matters such as Board representation and waiver of the Company’s Rights Agreement. The Company’s Board of Directors will consider the letter in accordance with its fiduciary responsibilities to all shareholders.

  35. MKL says:

    seekingalpha.com/article/116964-holland-ware-s-takeover-bid-for-forestar- looks-questionable

  36. MKL says:

    Icahn holds 800k of FOR.

    Still searching.

  37. John says:


    As for a specific date to purchase by… I am not aware of any such stipulation. I use Ameritrade as my broker and the only thing that you need to worry about is if you do decide to tender the shares, with Ameritrade, you must do so before 4pm est on Feb 17. If you tender your shares you should see your money within 14 days (usually sooner). In the ANL case, if you do not tender your shares, you will still get bought out, but those that tender get their transactions filled sooner. In my opinion, the best thing to do is to try to sell out on or before the expiration date on the open market so that you get your money immediately. Hopefully, you only lose a few cents per share off the deal price by doing that. Also, if the tender offer is extended (which seems to happen often) you can Un-tender your shares and sell them on the open market yourself.

    Thanks for the info on the suit, MKL. I’ll have to look into that as well. I also have FOR on my radar as well as HLND which had a similar offer from the Chairman to take it private for $9.50. There has been no response that I have seen so far. Other less lucrative positions that I am looking at and would welcome any feedback are ALDN, WSTF, and PDGI.

  38. Jae Jun says:

    @ MKL

    I may have to start looking into FOR to see why the spread is so large.

    @ John,
    I still havent been able to read up on ANL. Was too busy to be on the computer over the weekend. Hope to get a chance to catch up before I miss the boat completely.

    I’m with Fidelity and they charge $20 for a tender plus the commission of $10.95. So $42 in fees alone… need to see how my much money I will need to invest to get that expense ratio down..

  39. MKL says:

    Jae Jun, Holland Ware made the offer, or his charitable trust did, a 501c3. His trust owns land in Georgia and Texas, and FOR owns land. His offer is being considered by FOR. Icahn is the second largest holder, after Barclays (which also owned EMAG and PSD).

    The offer was lettered February 2, 2009, and it said HWare is “prepared to make a cash tender offer for any and all shares at $15 per share, under certain conditions, including support of the Board of Directors for the tender offer and mutual agreement on related matters such as Board representation and waiver of the Company’s Rights Agreement.”

    It’s been seven days so they must be still communicating with their board and major shareholders. I hope they speak soon.

    Icahn and Barclays appear to have acquired their shares in mid November 2008, when the price appears to have between $3 and $5. I can’t imagine that their major shareholders are interested in putting up a fight to hold out for more than $15. Though Icahn and Barclays are the largest shareholders, FOR is by no means anything but smallfry on their portfolios. Unless its future value is.. Even then, one in the hand is worth two in the bush.

    I’ve got a magnifying glass on this one.

  40. John says:

    Regarding ANL… All I can find extension of the tender offer is the two shareholder suits mentioned above. One was settled in January and the other request for an injunction was denied on Feb 3. There are no other suits that I can find, but also no press releases or information saying that the suits were the cause of the extension. Again, only 88% of the shares need to be tendered and as of Feb 5, 93% were tendered so this cannot be the holdup. If anyone else can figure out this mystery, I would love their input.

    MKL, your last post says Icahn got his shares for less than the offer price, but the seeking alpha article that you mentioned above says that he bought his for more than $15 and speculates that he might not be willing to sell out for a loss. I have not looked myself to see which is correct, but perhaps we need some clarity on that issue.

  41. Andrei says:

    According to gurufocus Icahn reported his first ownership interest in FOR at the end of Dec. 2007. At the time shares were trading in a range between $22.60 and $24.25. He averaged down it looks like in the 1st three months of 2008 when shares traded between $19.05 and $27.95.

    Still have to verify with the SEC filings.

  42. MKL says:

    Thank you. I believe you guys. I also read that seekingalpha article, but she didn’t say where she got her information (doesn’t mean it isn’t right!) so I went looking. I only know MFFAIS and it records the reported date. To me that could mean the date it was reported to MFFAIS which could be completely irrelevant. However it’s all I have so I looked in mid November 2008 (being the last “report” of acquisition) and the price range then was $3 to $5. And that’s just from the graph on Google finance.

    I will have a look at gurufocus.

    Andrei, how would I verify with the SEC filings?

  43. Jae Jun says:

    I believe you can search for his Form 13F which discloses his funds positions. Im not sure what the name of his fund is though as I’ve never really followed him.

  44. Andrei says:

    I think the way it would be done is that you can go to the SEC website and try to search by company name in the full text search. So you would type in Forestar and look for form 4 filings for Carl Icahn. Those should tell you what he acquired and at what price for the date ranges in question. Please correct me if I’m wrong though.

  45. MKL says:

    Icahn Capital Management and “Carl C Icahn et al” are two separately listed owners of FOR. I will try the SEC search. I did find in gurufocus the price ranges you mentioned Andrei, but the SEC is a primary source, so I will go there. He would seem to present a potential monkeywrench in my plans if it wasn’t to his liking.

    That DISK is getting away from me today, and I think someone knows something somewhere. Probably a letter will come out soon, from Nyx.

  46. Jae Jun says:

    Icahn does hold 800k.

    But it is very small compared to his portfolio. It only makes up 0.23% of his portfolio.

  47. MKL says:

    I really do like the spread on DISK. I really DO like that DISK went up today 30%. I just can’t trust Nyx. I’ve googled Q-Black and Joe Q. Bretz. Nyx Acquisitions is an affiliate of Q-Black, run by Joe Q. I know it’s a private company and doesn’t need to communicate, but it DOESN”T COMMUNICATE! Items I have found are of Joe Q starting up a management relationship (managing and promoting) with a band called Mouth to Mouth (in Austin) and then.. there is nothing. Apparently Q-Black has nightclubs, movies, bands, etc., but I can’t find anything they DO HAVE ONGOING communications about other than the current film “The Chosen One”. Which isn’t to say that they do not have these enterprises, I just don’t want to guess, or hope blindly. What nightclub do they own?? There is a restaurant in SF called “Q” but they don’t claim to own it, nor does Q name their owner. Whoops that’s just me guessing because I want it to be that.

    Perhaps their solution to this dilemma is their newly announced relationship with Placemaking Group as their PR agents. But that’s me guessing again because I want the 152% spread as of today!

    With “no financing conditions”, where does their money come from??

    I did find an article about the previous attempt at a merger/takeover of DISK saying that DISK was finally so relieved to have a real deal on their hands. They had had a full year of back-and-forthing breach of contract allegations, and finally Nyx stepped ably in… And now…?

  48. Andrei says:

    New merger arbitrage idea–Symbol is DFZ. A couple of days ago the company announced that they had received an unsolicited offer to buy the shares at a price between $7 and $7.75 each. This leaves a spread of around 17% if you can get the shares at $6 and assume that they’ll receive the lower end of the unsolicited bid. The company that made the offer is a private equity firm by the name of Mill Road Capital based in Connecticut.

    According to the story at http://www.tradingmarkets.com/.site/news/Stock%20News/2164230/ the company’s board is expected to make a decision during this next month.

    Quickly glancing at some key stats for DFZ from yahoo finance, I see that they have about $27M of cash ($2.60+ per share) and they only have $2.43M of debt. I’ll have to dig deeper on this one. Anyone looking at this one?

  49. Andrei says:

    New arbitrage opportunity– Symbol: DFZ. The stock closed at $6.20/shr. today. The company received an unsolicited offer to buy all shares for a price between $7.00 and 7.75/shr. The offer came from Mill Road Capital based in Connecticut.

    Article about the potential deal: http://www.tradingmarkets.com/.site/news/Stock%20News/2164230/

    The article states that the board of directors is reviewing the offer and should make a decision within a month. This could be a shot at a quick 12%+ return in as little as 4-6 weeks.

    Has anyone else looked into this potential arbitrage play?

  50. John says:

    Any news on what is going on with EMAG this morning???

  51. Andrei says:

    I’m wondering if it isn’t profit taking as I can’t seem to find any news from EMAG this morning to explain the drop.

  52. John says:

    There was an EMAG SEC filing released yesterday. Looks like Prescott sold all of its shares, but I after a very brief read, looks like that was in late January so it should not be news now. Can’t find anything else, but it is recovering a bit now. Perhaps it was a large sell order that hit a thinly traded stock. Question now is do you add on the decline or sell out a bit just to be cautious? The life of a trader….

  53. Jae Jun says:

    and I put in another buy order at 2.64 which was filled as soon as I left this morning…. grrr

    It had dropped to $2.00 at one point. Stop losses are being filled as the market is tanking. Glad I didn’t put a stop loss as I would have lost quite a lot.

    No news either so need to calm down.

  54. MKL says:

    Yes. It’s ok. I read that one link about SIB “losing control” of ELAN, and I wondered if the money freed up from that earlier in February wasn’t deliberate on SIB’s part to free up money for EMAG which closes tomorrow. We found as much as we could. Remember HSSO’s presentation.

  55. Jae Jun says:

    EMAG back to where it was again so quickly.

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