Pretty interested when Free Money comes into play.
Here's my 2cents...
Method taken from mary buffet's book on warren's arbitrage methods
Date : 13th Sept 2011
General Offer : $4.35
Current price : $4.16
Before GO : $3.50
Projected Dividends : $0.15(taking last yr's 0.75CNY DPU)
[wrap]
[table=Probabilty Success]
Adjusted Projected Profit (/share)
Dividend Adjusted Projected Profit
APR % profit
Adjusted Projected Loss (/share)
APL% downside
Risk adjusted Projected Profit
Risk adjusted Projected Profit (w Div)
RAPP %
RAPP % (w Div)
RAPP % (w 2xDiv)[/table]
[table=90%]
$0.171
$0.321
4.11%
$(0.066)
-1.59%
$0.105
$0.255
2.52%
6.13%
9.74%[/table]
[table=80%]
$0.152
$0.302
3.65%
$(0.132)
-3.17%
$0.020
$0.170
0.48%
4.09%
7.69%[/table]
[table=70%]
$0.133
$0.283
3.20%
$(0.198)
-4.76%
$(0.065)
$0.085
-1.56%
2.04%
5.65%[/table]
[table=60%]
$0.114
$0.264
2.74%
$(0.264)
-6.35%
$(0.150)
$-
-3.61%
0.00%
3.61%[/table] [/wrap]
[wrap]
Lookup table for Annualized Returns
(not meant for decision making, cos we do not have control over the approval process)
[table=Proj Annualized Returns vs Prob Success]
1 mth
3
6
9
12
18[/table]
[table=90%]
30.29%
24.52%
12.26%
8.17%
9.74%
6.49%[/table]
[table=80%]
5.77%
16.35%
8.17%
5.45%
4.09%
2.72%[/table]
[table=70%]
NM
8.17%
4.09%
2.72%
5.65%
3.77%[/table]
[table=60%]
NM
0.00%
0.00%
0.00%
3.61%
2.40%[/table]
[/wrap]
The problem is how do we determine the % of success.
If I had to confidence to say there is a 90% chance the deal will be approve and paid for in 6months, I'll go for it. 12% annualized returns, not that bad.
Personally, due to my limited knowledge and experience to the M&A activities in china, I would stay out of this GO until it is approved and see whether there's indeed any money left to pick up.
Maybe even if it's 1c at 4.34, it aint that bad too right?
Other potential factors to watch out for:
- Transaction costs
- Potential of mega div this year?
(since stake by Hsu family in company next year would most likely decrease)
- Liquidity of the counter
- Leverage options and returns