On June 2, 2016, the First Marblehead Corporation (NYSE:FMD) entered into an agreement to be acquired by two companies controlled by John Carter Risley, a Canadian businessman with investments in fisheries, food supplements, and communications. Investors can buy into FMD now and make an annualized 17% return by the end of the summer.
Why? As always, it’s all about betting on the safest horses. In a diversified portfolio, M&A arbitrage holds the role of an investment which has the volatility of a bond, while offering the annualized return of a stock. Of course, that is assuming that the transaction does not get voted down by shareholders or blocked by regulators for say, antitrust concerns.
The shares of First Marblehead are set to get acquired at US$5.05/share, and currently trade at US$4.91/share. While a date for the shareholders vote has not been made public yet, I expect that it will take place by the end of September 2016, maybe as early as the first or second week of that month.
What needs to happen on the vote day for the deal to go through? 50% of the shares need to be voted in favor of the offer extended by Mr. Risley. Mr. Risley himself already owns ~24% of the company, which you can expect him to vote ‘FOR’ his proposal. That leaves only 26% of the shares outstanding to go, which should not be an issue since the premium offered to the unaffected share price is ~41% and the contemplated offer was the best (and only) that emerged from the sale process.
Other than the vote, I don’t see anything else that could get in the way. There is 0 antitrust risk as Mr. Risley’s other businesses are in unrelated industries, and the offer is not conditional on any financing being obtained. To be clear, Mr. Risley’s estimated net worth is C$2.35 billion, so there should be little concern over his ability to pay the ~US$57 million he needs to fork out in order to take First Marblehead off its public listing.
Therefore, the trade on this merger is rather simple. Pick up some shares, go to the beach and enjoy your summer. When you’re back, chance is you’ll be able to reap the rewards. Remember: sometimes it’s not about making 1,000% with the risk of losing everything; sometimes, it’s just about getting those low hanging fruits on a consistent basis. Anyone who’s been reading this blog for the last few weeks and acted on the opportunities I highlighted had the potential to make thousands of dollars (check the portfolio), at a very low level of volatility (but the need to be diversified remains, so it’s always better to bet on several arbitrages than going all-in on one).
Hope you’re enjoying the content so far. I will be posting more opportunities over the next few weeks so stay tuned and sign up to the blog to get notified of new posts if you haven’t done so yet.
Disclosure: Long The First Marblehead Corporation.
This article expresses an opinion and the author does not receive compensation for it and has no business relationship with any company whose stock is mentioned in this article; do your own due diligence before making investment decisions.