ADAM/EBIX Merger Arb: Conclusions

ADAM and EBIX concluded favorably from my point of view. To recap, ADAM/EBIX were poised to approve a merger (.3122 EBIX/1 ADAM) at the last post. I felt there was a good probability, and enticing yield to the trade.

I longed ADAM at $7.55 with the intention of shorting .3122 EBIX for each ADAM share. Here, I made two mistakes covered in the past post. Ultimately, EBIX continued to drop. I cut my losses by shorting EBIX at $22.85, which translates to a closeout of $7.13 on the ADAM shares. Thoughts:

1) So unfortunately, I lost 42 cents on each share of ADAM I bought. But it was a cheap lesson. And the merger went through, which leaves me still pretty interested in these types of trades. Properly executed, it would have been a 4% yield in 2-3 weeks. I sit in cash frequently, so even merger arb trades with thin spread are interesting as a CD replacement.

2) Figure out the Scottrade margin requirements exactly. I went $8xxx long and $8xxx short. But I wasn’t charged for $16xxx against my margin. So it really would be a 4% return instead of 2%.

3) EBIX actually rallied as the merger closed. Had I waited, I could have shorted EBIX at 25. Good grief. I’m thinking that “waiting to short until the deal has been approved” is worth tracking and a viable strategy. Investors seemed to think that closing the deal was a positive catalyst for EBIX.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s