PennantPark Floating Rate Capital closed the merger with MCG Capital today. This was one of my higher conviction merger arbitrage idea’s, but it didn’t exactly work out. The higher HC2 bid fell through while PFLT started trading at a discount to NAV. As a result, MCGC shareholders will receive approximately $4.37 value in share according to my calculations, based on PFLT trading at $12.90/share. I managed to exit a little bit higher than that, but the result is a very small loss despite the merger actually going through (can’t complain though since it is less than 4bps).
With PFLT now trading at a 10% discount it might actually be a decent long. Historically it has been trading right around NAV, and now that it is bigger it should, in theory, have some economies of scale and be a bit better as well. I’m not really interested in buying something at a 10% discount, but it is probably not a terrible idea.
No position in MCGC or PFLT
Because the 10 day VWAP is less than the NAV as of the closing date for PFLT, MCGC shareholders received an extra $0.25 in cash per PLFT share. So total cash consideration should be $0.30595 per share, not $0.226 per share. So in aggregate, it is about $4.48 per share based on current market price (not counting the $0.095 dividend payable on 09/01/15)
I see where I made a mistake. Looked at the 14.33 PFLT NAV, but apparently that number has been updated and changed a bit for the calculation of the final exchange ratio.
As per the deal conditions, it was based on a NAV “computed no more than 48 hours before the effective time of the Merger”. Now that we know the conversion ratio, it’s possible to solve for PFLT’s NAV and find it was $14.11 at the time of the exchange.