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In my first exclusive email to premium members last month, we unveiled two new features on InsideArbitrage.com including the ability to view a spread history chart for every merger (accessed from the Merger Arbitrage Tool) and a sector heat map of management-only insider purchases. Today we are pleased to release an enhancement to the spread history chart that displays key events on the chart and includes a table of these events at the bottom of the chart. Since a picture is worth ten thousand words, the following screenshot of the spread history for the acquisition of WGL Holdings (WGL) by AltaGas should give you an idea of how this enhancement works.
When you access the spread history charts from the website, you will be able to roll your mouse over the E markers on the chart to see which event they refer to and when that event occurred. As you can see from the chart above, shareholders of WGL approved the deal on May 10, 2017 and the deal received CFIUS approval in July 2017.
The chart lets you see the impact of these events on the spread and as one would expect, the spread steadily narrowed from over 10% to just 2.08% on January 7, 2018. Oddly enough the spread then went on to increase to 8.66% less than two months later before settling down to its current 3.85%. At the current spread, if this all-cash deal closes by the end of the second quarter of 2018, the potential annualized returns are 19.24%. After receiving approval from various federal and state regulators, the only approval the deal needs is from the District of Columbia. On April 4, the company indicated that the District of Columbia Public Service Commission (DC PSC) is expected to make a final decision by mid-2018.
If for some reason, the deal gets delayed beyond the second quarter of 2018, the annualized return will drop but this could be partially offset if WGL declares a dividend with a record date in July. The last dividend of $0.515 was declared on March 1st and is payable to shareholders on record as of April 10, 2018. I liked the risk/reward offered by this deal and decided to start a position.
Another deal worth exploring is the recently announced all-cash acquisition of AveXis (AVXS) by Novartis (NVS). The spread on the deal is 4.01%, which works out to an annualized gain of 20.04% should the deal close by the end of Q2 2018. Beyond getting enough shareholders to tender their shares and expiration of the HSR act period, the deal is also subject to review by CFIUS.