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Merger arbitrage
Now that spreads have blown out, one can put together a profitable merger arbitrage portfolio. Here’s one candidate for inclusion.
Who?
MoneyGram (NASDAQ:MGI) offers person to person payment solutions.
What?
Madison Dearborn Partners is buying MoneyGram for $11 per share in cash. The target’s shareholders approved the deal as did regulators in the US and Germany. It still needs clearances in Saudi Arabia, Cyprus, foreign investment approval in Italy, and money transmittal license transfers.
When?
The deal will probably close by December.
Where?
They operate internationally with a focus on cross-border payments.
Why?
There is a certain type of snobbery that markets itself as progressive – bashing companies that serve less well-off customers. The basic premise is generally the same – while customers may well be far better off than they would be without the type of service available to them, it is less than perfect so the imperfections should be attacked. Economically, the best solution is to let markets clear. Politically, the best solution is to bash services for the poor and middle class, even if that hurts their customers.
Enter ambitious politicians such as CFPB Director Rohit Chopra who seeks to score political points by attacking MGI. The company has done a good job responding and has not appeared to violate any part of their definitive merger agreement, but political attacks have driven out the spread. It has become a noisy situation that could get delayed, but you get paid for the possible wait:
|
Target |
Ticker |
Parity |
Spread |
IRR |
|
MoneyGram |
(MGI) |
$11.00 |
$1.25 |
27% |
Conclusion
Politicians will be political, but nothing that has come out against MGI should kill the deal.
TL;DR
Buy MGI.
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