In merger arbitrage, an investor generally buys the stock of the company being acquired, short sells the relevant ratio of the acquirer’s stock if applicable, and waits for the deal to close. When the merger is complete, the investor exchanges the stock of the company being acquired for the amount agreed on in the deal.
Big deal in the consumer sector
On March 3, 2016, Samsonite and Tumi (TUMI) announced that Samsonite will buy Tumi in a $1.8 billion deal. The deal will be a cash transaction set at $26.75 per share.
The companies expect it to close in 2H16. This will depend on the antitrust review and whether US authorities issue a second request. The luggage and handbag market is relatively fragmented. However, there’s always the risk that the antitrust authorities will take a closer look.
The spread is trading at $0.30 gross or about 1.1%. If you annualize the spread out to a four-month timeline, the spread is trading at 2.6%. This is a relatively narrow spread. This could indicate that the market suspects that the situation might get competitive.
Other merger arbitrage resources
Other important merger spreads include the Cigna (CI)-Anthem (ANTM) deal. It’s slated to close in 2H16. The Apollo-ADT (ADT) merger is another important deal. For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.
Investors who are interested in trading in the consumer discretionary sector should look at the Vanguard Consumer Discretionary ETF (VCR).