Tuesday, December 20, 2016

Bought Rite-Aid

I took off my positions in Actelion (Ticker: ALIOY) (-7.18%) and Valspar (Ticker: VAL) (-0.74%) generating some small losses. These were not large positions (~4% in each), but Actelion essentially hit my loss limit and Valspar looks like it will take a bit longer to close (end of Q1). I did not like the risk profile when compared to Rite-Aid (Ticker: RAD), which just  announced the store divestiture to soothe the FTC’s concerns. I initiated a position in Rite-Aid (yes, once again!) at an average price of $8.60. This looks like it has a very good chance of closing by the extended merger end date of 1/27/17. The divestiture of the stores to Fred’s (Ticker: FRED) really de-risked this merger arb play in a big way. I am looking at a potential net gain of ~4.5% (~41% annualized assuming a close by 1/27). Yes, this is a large position…

I’ve learned that position sizing in relation to the potential risk is very important. Even though I took losses in Actelion and Valspar, they were relatively small... The Rite-Aid risk reward is just too good to pass up.

16 Comments:

At December 23, 2016, Anonymous Anonymous said...

what about INVN TDK deal?
how many months do you estimate this close? It's written second quarted of the fiscal year 2018, what does it mean? I'm confused how to calculate such date for the closing of the deal. I read somebody estimate july 2017 and somebody march 2018... confused. Please MT help me to have an idea of when this deal could close, thank you.

 
At December 23, 2016, Blogger Eric L said...

August 2017

 
At December 26, 2016, Anonymous Anonymous said...

MT
what do you think about this article by NY Post?
http://nypost.com/2016/12/23/ftc-will-make-a-decision-on-walgreens-rite-aid-merger/

 
At December 26, 2016, Blogger Money Turtle said...

I didn't find anything informative in the NY Post article. A rehash of a lot of old news. The fact that the FTC will be making a decision under the current administration is nothing new. There have been reports stating that Walgreen's would like to get this deal done under the current administration. No deal is ever guaranteed, Walgreen's just proposed a large divestiture plan and the FTC will need to closely analyze.

From my view, Fred's got a deal in which they are practically guaranteed to make money from the stores they are acquiring. Walgreen's gave away the stores. The big plus I see in this deal is the 2 year transitional agreement with Walgreen's. During this time, Walgreen's will be providing support to Fred's to ensure a smooth transition and basically ensuring the success of Fred's during this period. I think the FTC will find this transitional agreement favorably as this will ensure that Fred's will not screw things up.

 
At December 27, 2016, Anonymous Anonymous said...

INVN deal MT when do you estimate the close? It's hard to read from news.

 
At December 27, 2016, Anonymous Anonymous said...

MT
Thanks for the RAD input. The price has come down quite a bit and lets hope it gets approved. Thanks for WBMD

 
At December 28, 2016, Anonymous Anonymous said...

Did RAD hit ur stop loss? Thanks

 
At December 28, 2016, Blogger Money Turtle said...

Regarding INVN Closing, the release states a closing of Q2, fiscal year ending March 31, 2018. So you have to work backwards and I also come up with a closing by August 2017. They should just clearly state the anticipated closing date.

Yes, unfortunately I got stopped out of RAD today.

 
At December 29, 2016, Anonymous Anonymous said...

thank you for INVN to all.

About RAD I do not have the courage, shoul I? it's very big bet, please write more about it, and which dates you are expecting for the main news.

 
At December 29, 2016, Blogger Money Turtle said...

Walgreen's extended the merger deadline to January 27th. The FTC is anticipated to announce their decision by the 3rd week of January (before the Trump administration takes over on January 20th).

I can't tell you what to do, but there is definitely a big downside risk if this deal is breaks. Definitely need to put some hedges in place if your going to play this.

 
At December 30, 2016, Anonymous Anonymous said...

Cabelas down today CAB, news?

 
At December 30, 2016, Blogger Money Turtle said...

CAB - FTC wants additional info delaying close to second half 2017. Also some delay from the Fed with approval of Capital One's purchase of the credit card biz.

 
At December 30, 2016, Anonymous Anonymous said...

will you play CAB? or risky deal? now with this spread seem interesting. Do you think the deal will close?

 
At January 01, 2017, Blogger Money Turtle said...

Possible with CAB at some point, but I think it's too early now. I do think this deal will close...

 
At January 18, 2017, Anonymous mergerpie.com said...

i believe there maybe a danger the approval will not come on 20th Jan. I maybe wrong but store divestitures are not just numbers. FTC had to analyse the locations of the stores and the competition available in each area and it will be massive work. There may also be disagreement on the locations to be divested between FTC, Walgreen/Rite-Aid and Fred. I am sure there will be alot of discussion between the parties but eventually the deal will be approved, just that the timeline is abit tight at the moment.

 
At January 18, 2017, Anonymous mergerpie.com said...

FTC is also busy reviewing the Sherwin-Williams / Valspar deal..incidentally, if both deals delay until after the trump administration comes in, they will have a much better chance of closing.

 

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