Sunday, December 20, 2009
Of course there is still JAVA
Larry Ellison was pretty confident of deal between ORCL and SUN micro (JAVA) closing in January on ORCL earnings call. He was talking as if this was a done deal. If you're still worried than buy the Jan 9 Calls for .45 and take your 10%. At this point I'm pretty sure things will wind down by Jan expiration. Some approvals are still pending, such as Russia and South Africa, but I think we're headed for a January closing. Just to remind you ORCL is paying 9.50 USD cash for JAVA.
IMS Health Care (RX) being bought by TPG
IMS shareholders will receive $22.00 cash for each share of IMS common stock they own. Stock is currently trading at $20.56. This deal is expected to close Around Feb 8 after the shareholder vote. That translates into a 7% in 1.5 months. There is a whole bunch of stuff (or fear) surrounding this deal; hence the large spread. A certain deal would be trading at 1% or so. The fears are 1) even though there is no formal financing condition; TPG is still a private equity firm. Private equity firms are notorious for weaseling out of deals if financing becomes difficult. 2) The MAC (material adverse clause) would be a way for TPG to weasel out considering that recent legislation is suggesting that data mining of health data would be illegal which happens to be IMS's largest profit center.
I don't think the fear is warranted. I don't think legislation will pass. I don't think MAC will hold if it does. I don't think this will happen in the near term. I think this is a good trade.
What am I missing? It doesn't really matter. If I'm wrong - which I have been - the stock drops to 10-15 dollars. Even though I give that a small probability, nevertheless the probability still exists.
Ways to trade:
Option 1:
Buy FEB 10 20 options for 1.5. You make 33% on you money if deal closes shortly after Feb 8 shareholder vote. Otherwise you lose at most $1.5 or part of that if deal is delayed.
Option 2:
Buy May 10 20 options for 1.7. You make 20% on you money if deal closes. If deal closes it will happen prior to May. Otherwise you lose at most $1.7 or part of that if deal is delayed.
Option 3:
Calendar spread. Buy Feb 10 20 options for 1.5. Sell Jan 10 for 1.1. Deal will not close prior to Jan. Probably net 0 on Jan call. Make 0.5 on Feb call. If deal breaks it will probably happen sooner which limits loss to .40. If deal breaks after Jan expiration prior to Feb you lose the same 1.5.
I don't think the fear is warranted. I don't think legislation will pass. I don't think MAC will hold if it does. I don't think this will happen in the near term. I think this is a good trade.
What am I missing? It doesn't really matter. If I'm wrong - which I have been - the stock drops to 10-15 dollars. Even though I give that a small probability, nevertheless the probability still exists.
Ways to trade:
Option 1:
Buy FEB 10 20 options for 1.5. You make 33% on you money if deal closes shortly after Feb 8 shareholder vote. Otherwise you lose at most $1.5 or part of that if deal is delayed.
Option 2:
Buy May 10 20 options for 1.7. You make 20% on you money if deal closes. If deal closes it will happen prior to May. Otherwise you lose at most $1.7 or part of that if deal is delayed.
Option 3:
Calendar spread. Buy Feb 10 20 options for 1.5. Sell Jan 10 for 1.1. Deal will not close prior to Jan. Probably net 0 on Jan call. Make 0.5 on Feb call. If deal breaks it will probably happen sooner which limits loss to .40. If deal breaks after Jan expiration prior to Feb you lose the same 1.5.
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