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Summary The arb universe with highlighted opportunities. An idea on how to best time setting them up. One plug and play way to get these at a discount. What are today’s best merger arb opportunities? What are the arbs saying? 1. The first opportunity is to put together a portfolio by hand. The bolded opportunities are the seven that I see as the best risk-adjusted opportunities. Click on comments for additional deals on the specific opportunities. 2. Wait for the next antitrust suit Last fall’s abandonment of the AbbVie (NYSE: ABBV ) acquisition of Shire (NASDAQ: SHPG ) was an exceedingly well disguised blessing for arbs. While the SHPG price cratered before subsequently recovering fully, the chaos led to the best arb spreads relative to risk in years. Today, it appears as if the US antitrust authorities are probably preparing at least one antitrust enforcement action. If/when they block at least one of the current deals (Rexam PLC ADR ( OTCQX:REXMD )? Office Depot Inc. (NASDAQ: ODP )?), the other spreads will widen price-insensitively, leaving better opportunities, perhaps ones that rival last autumn’s. 3. Leave it to the pros While I am an avowed skeptic of the whole concept of “smart money,” this is admittedly a highly research-intensive and fact-specific investment strategy. So, you may want to seek professional help. Hedge funds such as Rangeley Capital are limited to accredited investors. I try to communicate my most actionable items to Sifting the World members, but sometimes you just want someone else to pull the trigger. What should you do? One candidate is to invest in GDL Fund (NYSE: GDL ). According to the fund’s objective, The Fund is a diversified, closed-end management investment company whose investment objective is to achieve absolute returns in various market conditions without excessive risk of capital. Absolute returns are defined as positive total returns, regardless of the direction of securities markets. To achieve its investment objective, the Fund, under normal market conditions, will invest primarily in securities of companies (both domestic and foreign) involved in publicly announced mergers, takeovers, tender offers and leveraged buyouts and, to a lesser extent, in corporate reorganizations involving stubs, spin-offs, and liquidations. The manager is someone I respect. The expense ratio of over 3% is indefensibly obscene, but less so than any hedge fund. The distribution yield is over 6%. The discount to NAV is over 17%. That discount is greater than the 5-year average and the YTD average. It is diversified across sectors. Top Sectors Consumer Services 16.28% Healthcare 12.21% Technology 12.20% Consumer Goods 8.07% Utilities 7.96% Oil & Gas 5.18% Basic Materials 4.64% Financials 4.57% Industrials 3.69% Telecommunications 2.09% Would I quibble with the specific positions? Sure. But does GDL deserve this deep a discount? I don’t think so. Does Gabelli Equity Trust (NYSE: GAB ) need an activist to come in and demand that they cut executive compensation? No comment. But if Mario Gabelli is available, he might want to take a look at it. Conclusion Today, there are some great merger arbitrage opportunities. Tomorrow, they could get even richer if we see a big antitrust suit against one or more of the current deal crop. If you want to take a dip but don’t want the bother, consider GDL as one way to get exposure at a significant discount. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Disclosure: I am/we are long PRGO, ALTR, ISSI, WMB, BHI, DEPO, PNK. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital. Rangeley invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our investors, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law. Scalper1 News
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