pcm983 Posted July 10, 2018 Share Posted July 10, 2018 Curious if anyone is following this one; high level is AKRX received a takeover offer and since then business has deteriorated plus there were some fraud accusations; acquirer suing to enforce a MAC and get out of the deal - trial this week - stock is at ~$18 vs. takeover offer at $34 historically, MAC's are very rarely enforced this article summarizes the situation well: https://seekingalpha.com/article/4178606-akorn-fresenius-merger-arbitrage Link to comment Share on other sites More sharing options...
Voodooking Posted September 5, 2018 Share Posted September 5, 2018 Hi pcm983 I have taken a small position in this. About 1% of portfolio. It seems like the stock price is beaten down because the legal issues have been dragging on for so long now. The thing is, the normal risk with arbitrage is that if a deal breaks, it will drop back down to its "pre-announcement" price... but this is now selling for less than it was before the deal was announced! I would hope that if the merger isn't enforced by the judge, they are able to shop it to someone else or the business prospects may improve slightly in the short term. The judge has less than 90 days to make a decision. It seems to me like one of these situations where "Heads I win; Tails I don't lose very much" situations, as Mohnish would say. I don't know if it's of any help to anyone, but I have included my analysis and calculations below. Even if we use Ben Graham's Merger Arbitrage calculation model and rank it on only a 1% chance of deal completion (meaning using odds that there is a 99% chance it won't go through, it still looks attractive! It looks like one of those rare opportunities to potentially double your money in a few weeks without much downside risk. Target Akorn Inc. Target Ticker AKRX Announced Date 24 April 2017 Closing Date 30 September 2018 Days Remaining Until Deal Closes 26 Acquiring Company Fresenius Kabi Acquiring Ticker FRE (FWB) Deal Type Cash Offer (Deal Closing Price) = O $34.00 Investment - (Latest Market-Close Price) = I $16.05 Projected Profit (Spread) = PP $17.95 Projected Rate of Return (Calculated Profit) = PRR 111.84% Annualised Projected Rate of Return (Calculated Profit) = ANPRR 1511.88% Likelihood of the Deal Happening = LDH 1% Adjusted Projected Profit = APP $0.18 Adjusted Projected Rate of Return = APRR 1% Price Before Announcement = PBA $18.60 Projected Loss = PL -$2.55 Likelihood of the Deal Falling Apart = LDFA 99% Adjusted Projected Loss = APL -$2.52 Risk-Adjusted Projected Profit = RAPP $2.70 Risk-Adjusted Projected Rate of Return = RAPRR 16.8% Annualised Risk-Adjusted Protected Rate of Return = ARAPRR 227.8% Is RAPP a positive figure (if negative, walk away) Yes Annualised Risk-Adjusted Return Greater Than Risk-free / Bond Return? Yes Highest Price in Last Quarter $19.51 Lowest Price in Last Quarter $13.81 Average Price Paid in Last Quarter $16.66 52-Week High Stock Price $33.63 52-Week Low Stock Price $10.76 Average Price Paid in Last 52 Weeks $22.20 Piotroski F-Score 2 F-Score Over 4? No Current Ratio 4.27 CR Over 2? Yes Link to comment Share on other sites More sharing options...
given2invest Posted September 5, 2018 Share Posted September 5, 2018 You can throw that all out the window. If there is no deal (either recut or at terms) this will 100% go below $10 and possibly to $5. That said, I also own. Link to comment Share on other sites More sharing options...
Voodooking Posted September 5, 2018 Share Posted September 5, 2018 Interesting. I am by no means an expert in arbitrage. I have participated in a few deals, but I'm also aware I still have a lot to learn about the strategy. Would you mind sharing roughly when you established a position and at what approximate price? I bought in at the start of the week at $15.98-ish. These guys also seem to be in Akorn, and although most of the positions are relatively small, these guys are not dummies: Ameritas Investment Partners, Inc. AQR Capital Management BlueCrest Capital Mgmt. Contrarian Capital D E Shaw Farallon Capital GAMCO Investors Highbridge Capital Management King Street Capital Lsv Asset Management Millennium Management Paulson & Co. Point72 Asia (hong Kong) Ltd Renaissance Technologies Sandell Asset Management Sessa Capital Two Sigma Advisors Link to comment Share on other sites More sharing options...
given2invest Posted September 5, 2018 Share Posted September 5, 2018 My purchase price is irrelevant - it's a sunk cost. All that matters is that I hold now. I'm short calls and puts against it (sept opex) as I expect nothing before then. Plenty of smart people are short AKRX too - I wouldn't pay much attention to the shareholder list. This is a battleground stock. Go look at how much the December $10 puts are to see how much downside is expected with an adverse ruling. Link to comment Share on other sites More sharing options...
DeepSouth Posted September 5, 2018 Share Posted September 5, 2018 Hi pcm983 I have taken a small position in this. About 1% of portfolio. It seems like the stock price is beaten down because the legal issues have been dragging on for so long now. The thing is, the normal risk with arbitrage is that if a deal breaks, it will drop back down to its "pre-announcement" price... but this is now selling for less than it was before the deal was announced! I would hope that if the merger isn't enforced by the judge, they are able to shop it to someone else or the business prospects may improve slightly in the short term. The judge has less than 90 days to make a decision. It seems to me like one of these situations where "Heads I win; Tails I don't lose very much" situations, as Mohnish would say. I don't know if it's of any help to anyone, but I have included my analysis and calculations below. Even if we use Ben Graham's Merger Arbitrage calculation model and rank it on only a 1% chance of deal completion (meaning using odds that there is a 99% chance it won't go through, it still looks attractive! It looks like one of those rare opportunities to potentially double your money in a few weeks without much downside risk. The company has fallen apart since the acquisition announcement and it's now more clearer how unethical management has been. This is a levered company burning cash with declining revenues. The pre-deal price 18 months ago is meaningless. I don't have a position but like given2invest wrote, this will trade single digits on a deal break, and could potentially be insolvent. Link to comment Share on other sites More sharing options...
bjakes00 Posted September 5, 2018 Share Posted September 5, 2018 Given2invest, aren't you increasing risk unnecessarily by selling puts? How confident are you that nothing will happen before then? When do you expect a judgement to be made? Link to comment Share on other sites More sharing options...
given2invest Posted September 5, 2018 Share Posted September 5, 2018 Yes, increasing risk. I am 99.9% confident. Google the words the judge used at the late august hearing. He has "a lot of work to do" and knows he has to rule within 90 days. He also urged a settlement. He can't rule fast if he wants them to settle but that's not why I'm confident. It's in the "lot of work to do" and asking people not to bother his clerks. All that said, the puts have more than cut in half since when I put them on. I still think they overvalued though (12.5 puts). Link to comment Share on other sites More sharing options...
bjakes00 Posted September 11, 2018 Share Posted September 11, 2018 There was some more movement on this yesterday with a motion scheduled to be heard via conference call today at noon: https://www.law360.com/delaware/articles/1081440/akorn-says-fda-report-rehashes-data-from-fresenius-trial Interestingly, this article says the argument was that the data integrity issues decreased the valuation by $1bn - which is roughly $26 per share. That's a healthy margin above where it is currently trading at $14 per share. I'm no expert in Delaware MAE rulings - would anyone know what the likelihood that a recut deal take place at a new valuation? Seems like the market is discounting a no deal scenario and a heavily depressed "post-no-deal" valuation. Link to comment Share on other sites More sharing options...
given2invest Posted September 11, 2018 Share Posted September 11, 2018 Nobody really thinks a recut will happen because A) hasn't happened yet and B) both sides are so angry/dug in. Could happen though. Has nothing to do with DE law. They would just agree to a recut and drop the lawsuits. Link to comment Share on other sites More sharing options...
bjakes00 Posted September 12, 2018 Share Posted September 12, 2018 Ok thanks but from the court point of view, the only two outcomes are deal is off or deal is on? There is no grey area where the court can come back saying deal is on but damages are x? Link to comment Share on other sites More sharing options...
writser Posted October 1, 2018 Share Posted October 1, 2018 You can throw that all out the window. If there is no deal (either recut or at terms) this will 100% go below $10 and possibly to $5. That said, I also own. http://investors.akorn.com/news-releases/news-release-details/akorn-comments-delaware-chancery-court-ruling Good call. Adverse ruling for Akorn - stock down ~50% and halted. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now