Opening a merger arbitrage play.
music selection: “A Stroke Of Luck” — Garbage
weigh-in: 211.4 (0.6)
I purchased Monsanto (MON) today at 114.60. The company is attractive in its own right. It gushes free cash flow and has a dominate market position in its segment. Bayer has made a buyout offer of 128 dollars a share – Cash. That is an 11.69% premium over my purchase price if the deal goes through. It will probably take some months for the deal to go through but I expect to do well with with very low risk. If the deal doesn’t go through, I own a great business yielding 1.88%, is optionable, and MON will collect a 2 billion dollar breakup fee if the deal fails. That two billion is an important kicker as it would like MON with a fortress of a balance sheet. As the spread between the offer price and spot price narrows, it may become worthwhile to juice returns with covered calls written at the 128 strike. Right now there is no liquidity at that strike.
I also sold puts on General Electric (GE). My previous puts expired out of the money on Friday. I’ve gone 50 cents in the money again as I’m eager to get assigned. I sold GE170413P00030500 for 74 cents a share. The trade will be in force for 39 days. It yields 22.71% annualized and enjoys 2.43% downside protection from a downward move in the stock price. GE remains attractive due to restructuring that has greater lowered risk in the financial division and the development of the Predix operating system that promises to do for GE what iOS did for Apple. If assigned, I will begin writing covered calls 10% out of the money to collect some income while I wait on price appreciation.
Devour your prey raptors!