Fresh Ideas: TLCR Merger Arb

On the merger arb front, I’m in TLCR at $24.33/share. Trade considerations:

  1. Offer upside from Grifols (Spanish pharmaceutical) is around $29 in mostly cash. This means, “don’t worry about shorting out the acquirer.”
  2. With 20% upside, it’s got the same upside as a normal stock, which tells me there similar risk as a normal stock (i.e., the merger isn’t a sure thing). So, I’ve put just 10% in, i.e., what I would invest in a normal stock in my portfolio.
  3. The reason for the huge gap is FTC approval.

My reasons for getting in:

  1. I read that TLCR has already produced a proxy statement (800 pages). You don’t do that unless you have confidence.
  2. It seems like a positive EV bet. 5 dollar upside, but I don’t see 5 dollar downside. Well then, is there >50% chance FTC doesn’t approve? I think not.
  3. One of the reasons I don’t see 5 dollar downside is a $375 mm breakup fee that Grifols pays TLCR (something like $3/share).

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