Thursday, June 26, 2014

Idenix Arb Play

Even though there has been a lot of M&A activity, it’s been a bit difficult zeroing in on a good risk reward opportunity. One of the plays I do like is Idenix (Ticker: IDIX), which is being acquired by Merck (Ticker: MRK) for $24.50 in cash. Idenix still carries a decent spread (~ 1.9% or ~ 15.54% annualized based on yesterday’s closing price of $24.04. This is assuming the cash hits the account by August 8th). I believe this deal is going to close pretty fast. The companies have already filed with the FTC and the waiting period will expire on July 3rd. I don’t see any issues with the FTC taking a closer look at this deal as Gilead (Ticker: GILD) owns this market right now. Merck’s tender offer will expire on August 4th and this deal should close shortly after.

I’ve been playing this via long common (average price of $23.60) and short out of the money Puts. The large spread can be attributed to the painful memories of Bristol Myers (Ticker: BMY) acquisition of Inhibitex. Bristol Myers acquired Inhibitex for its early hepatitis C candidate, which was in clinical trials. Shortly after the merger closed, adverse events were reported in the Inhibitex hepatitis C trial. This resulted in Bristol Myers pulling the plug on Inhibitex’s hepatitis C program and writing off the entire acquisition. 

Can this happen with Idenix? Yes, but I see the odds as very low. I’m sure Merck has performed extensive due diligence to ensure there is no replay of Inhibitex.

EDIT: Updated tender filing with the SEC today... The FTC waiting period is now expected to expire on July 18th.


At July 21, 2014, Anonymous Anonymous said...

looking good on IDIX

At July 21, 2014, Blogger Money Turtle said...

Yes, everything falling into the right place so far...


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