Today Luminex announced that it has increased its bid for Nanosphere with 26% from $1.35/share to $1.70/share as a result of an unsolicited third party offer at $1.50/share. When you enter the merger arbitrage game you don’t expect to make huge gains, but the fact that there is a small probability of a very favorable outcome like this acts nicely as a partial balance for the fact that there is also a small probability of a very negative outcome when the deal fails. Pre-market the stock is up to $1.67 which means that the spread also has narrowed to just 1.8%. But maybe some market participants are now hoping for a bidding war, although with the increase in the breakup fee that’s probably not very likely:
In response to the events described under Item 7.01 of this Current Report on Form 8-K, on May 22, 2016, the Company, Merger Subsidiary and Nanosphere entered into a First Amendment to the Merger Agreement (the “Amendment”) that (A) corrected scrivener’s errors such that the Offer would expire at 12:01 a.m. Eastern Daylight time on the 21st Business Day after commencement; (B) increased the per share Offer Price to $1.70 per Share; and (C) increased the Break-up Fee to $3,000,000.
Disclosure
Author is long Nanosphere
Thank you your earlier writing.
I bought 12000 shares.
Nice bet.
Congrats, I think you now owe me at least a beer 😉
AV, What is your take on WGBS, another small pharm takeover deal?
Haven’t look at that deal, but perhaps I’ll do that. Looks pretty complicated…
Maybe less complicated thank ALXA in terms of contingent value right. The key is the revenue projection. Management guidance is $12-13m, which seems very aggressive.
Estimating the amount of new debt that WGBS will need next year and whether or not they will pay back the Tbush deposit also seems tricky to me
You are right. The way I read it is that they may need cash to keep operating. Q1 CFO was -$4.15. Cash balance was $10.8 as of 3/31, so worst case they will need another $6m until deal close while Management seems to be confident that cash will be sufficient until 2017. However, they were wrong regarding revenue projection last year. The positive was new single cell system launch and European market. Q2 will give us better indication.
LOL. this worked out much better than expected.
How do you sieve out these merger arbitrage opportunities?