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This is my first email exclusively to premium members of Inside Arbitrage to announce the release of two new features that we have been working on for several weeks. One of the new features is for the merger arbitrage strategy and one for the insider trading strategy. As discussed in my recent Seeking Alpha article titled Akorn: A High Risk Arbitrage Situation, deals that fail often tend to see their spreads increase a few days before failing. I noticed this trend with Akorn (AKRX) as well before Fresenius announced that “it is investigating alleged breaches of FDA data integrity by Akorn related to product development”.
After reading the academic research about this phenomenon, I figured it would be helpful to chart the spread history for mergers and acquisitions to visually see if the spread was expanding or narrowing. Towards this end, we are releasing a new feature that you can access from the Merger Arbitrage Tool (MAT), which will let you see the spread history in a customizable chart. To access this feature, click on the little chart icon next to the symbol of the stock you are interested in, as you can see from the image below.
Once the spread chart opens you can see the full spread history for the company from the time the deal was announced through the most recent trading day’s close. The spread chart for Monsanto is given below and I was surprised to see that at one point the spread on that deal was nearly 30%. I went back to our Merger Arbitrage Mondays post from November 7, 2016 to verify that this was indeed the case.
You can zoom into a portion of the chart by using the buttons on the top left, setting the date in the top right or using the slider at the bottom. As you can see from the following chart, the spread on the Monsanto deal has dropped from nearly 8% to under 4% over the last month.
The other new feature we built was to allow premium members to visually see which sectors and industries were seeing the largest number of insider purchases both in terms of the number of purchases and the dollar amounts. The Sector Heat Map will let you see management only insider purchases (no purchases by 10% owners or directors are included) by sectors and industries. The default setting is to display a heat map for the last 7 days of purchases. You can use the filter at the top right to change the time interval from 7 days to 30 days or 90 days.