Will Arbitrageurs Set Up the WhiteWave Trade?



Spread is trading super-tight

In the risk arbitrage world, a 0.5% annualized return is too tight to bother with unless you think it gets competitive. You won’t know if WhiteWave (WWAV) ran a sale process until after the preliminary proxy statement comes out. Is it worth having some on the pad? Note that buying the stock isn’t the only way to play this situation. It looks like there has been a lot of trading in the August $57.50 calls, which are a way to play the potential for an interloper. The calls are trading around 20 cents. However, if someone like General Mills comes in and offers $60 a share, they will be going to at least $2.50—and much more if Danone counterbids. Of course, if the deal closes as advertised, the calls will expire worthless.

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The other thing to keep in mind is that Danone is a quality buyer. Large companies like Danone are probably not going to let another buyer come in and not counter-bid. Danone will probably be able to finance the transaction even if the financial markets get dicey over the summer based on Brexit fallout.

Arbs will probably wait for the spread to drift wider until it actually has a decent enough return to step in. At these levels, without much to go on, it is hard to get excited about this situation.


Investors who are interested in trading in the consumer discretionary sector should look at the Vanguard Consumer Discretionary ETF (VCR).


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