Nano cap merger arbitrage in Nanosphere

Last Sunday Nanosphere announced that it will be acquired by Luminex for $1.35/share. Luminex is a $837 million market cap company while Nanosphere is being acquired for $58 million. Just $16.5 million is payment for the outstanding ordinary shares, the remainder is for the outstanding debt and the convertible preferred stock. Luminex is planning to acquire Nanosphere through a tender offer that will be launched within 15 business days after the merger agreement was signed. Since most tender offers remain open for ~20 business days the merger should be completed before the end of June. This is confirmed in the press release that guides to an expected close in the second quarter of Luminex FY2016 (that ends December 31).

So the deal should close quickly, and there are really no big risks that can stand in the way. Regulatory approval isn’t an issue for such a small deal, Luminex can finance the deal with cash on hand and Nanosphere is a great strategic fit for Luminex. One condition of the tender offer is that at least a majority of the stock is tendered, but that shouldn’t be a problem since Luminex is offering a 73% premium. So I think this is a super low-risk deal, but presumable because of the small size of Nanosphere the spread is relatively wide and it’s possible to buy the stock at $1.31. This means an upside of 3.1% which I think is great for a deal like this.
Nanosphere logo

Disclosure

Author is long NSPH

7 thoughts on “Nano cap merger arbitrage in Nanosphere

  1. Vincent

    Interesting idea. I noticed that the company has about 13.5 million shares o/s. The volume is unusually high. It traded over 22 million shares on the day the deal was announced. How is that possible?

    Reply
  2. anon

    Spread is good… high probability of deal closing… but..

    Large bid/ask spread: a 3.1% + return is a big difference from a 2.3% return in these kind of deals.

    Also, while the deal is likely to be completed, there is tail risk — in that if the deal is not completed the stock will likely drop dramatically — maybe even 50%+. Seems to be worth taking a small position.

    Reply
  3. pietje

    “The purchase price has been increased to $1.70 per share from $1.35 per share in an all cash transaction valued at approximately $77 million. This increase was in response to an unsolicited third party offer for Nanosphere at $1.50 per share.”

    Congrats!

    Reply

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