Monday, 21 November 2016

Merger arbitrage:American Farmland

The idea is from the excellant Alpha Vulture Blog. I recommend reading his articles and comments.

It is an all-share deal.
"The parties currently expect the transaction to close during the early part of the first quarter of 2017, subject to customary closing conditions including the approval of the stockholders of both the Company and AFCO. However, the Company can provide no assurances that the AFCO Merger will close on the expected timeline or at all." 8k
The cost to short is about 20% and the expected IRR is about 35% with a conservatice closing date assumtion of 3/30/2017.

American Farmland CoAFCO7.94-9.97%11.07%8.82Farmland Partners IncFPI11.89034.58%3/30/2017

For the blog I went long AFCO and shorted a similar dollar amount of FPI to hedge. This way the merger spread is unhedged. There were few shares of FPI availabe to short. This is a trade I like. Just set and forget as long as the cost of the short does not rise too much. Luckily IRR was higher then cost to borrow by a wide margin.

Long AFCO, Short FPI

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