M&A Arbitrage Notes

Quick notes on a pair of M&A arbitrage opportunities:

Firstly, the acquisition of Memsic Inc. (Nasdaq: MEMS) by a wholly owned affiliate (MZ Investment Holdings Ltd.) of IDG-Accel Capital Partners for $4.225 per share in an all cash transaction.

– Shares are currently quoted at $4.08 per share for an approx. gain of 4.1% in just under six months as the transaction is expected to close by the end of Q3 2013.

– The acquirer already owns approx.19.5% of the co.’s outstanding shares and is purchasing the remainder, transaction has been approved by a special committee of the co.’s board of directors and only remains subject to approval by a majority of the co.’s shareholders at this point (of which a large proportion are members of the co.’s management team, including Chairman & CEO Yang Zhou).

– Deal price represents a 56% premium above the co.’s closing price of $2.71 per share when transaction was formally announced on April 23, 2013.

– Memsic’s board of directors is being investigated for potential breaches of fiduciary duties in connection with their conduct related to the sale by several law firms specializing in securities law, however i do not anticipate anything coming of this as the transaction was approved by a special committee made up strictly of independent directors whom followed due procedure in regards to vetting the matter.

There remains the outside possibility that this could delay a transaction being consummated, but not strike it down altogether given the fact that the largest shareholders of the company are management insiders whom have already indicated their full support for the deal.

See company Form 8-K filing for further details here: http://goo.gl/66lZV

Moving on, the second represents a management buyout/going private transaction in the form of a merger agreement between H.D.S. Investments LLC, and JM OCTG GROUP Ltd. (latter is entity controlled by WSP’s senior management). Board of director’s unanimously support the transaction, management owns sufficient shares to approve the Merger Agreement and the Merger and have agreed to vote in favor of such approval.

– H.D.S. Investments LLC has agreed to provide equity financing to the merged entity sufficient to fund the merger consideration and related transaction expenses upon the terms set forth in an equity commitment letter, see here: http://goo.gl/k9IbD

– Shares (American Depository Shares: NYSE WH) are being taken out at $3.20 per share, an approx. 4.3% premium to today’s (May 29) closing price of $3.07 per share.

– Transaction is expected to close by the end of Q2 2013, subject to the authorization and approval of the Merger Agreement by an affirmative vote of shareholders representing at least two-thirds of the shares.

All things considering, if the stipulated transaction timelines and terms are met these deals would garner a very respectable gain of approx. 8.4% within a time frame of just six months.

In closing, I will venture to lament about the primary tenets i look for in such special situation investments, er intelligent speculations at a later date, for now one should be able to discern some striking similarities between the two arbs mentioned above.

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4 thoughts on “M&A Arbitrage Notes

  1. why are you using such complicated language to explain simple things? a lot of value investors have this weird buffett style copy cat complex, i don’t get it… it just makes you look pretentious,… but maybe that’s what you wanted anyway….

    the wh merger attracts an adr fee of $0.05/share, which cuts your expected return by about 1/3 rd

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