BCSB FNB Merger Arb

[nnayyar]

This is a small merger arb play with a good return, i calculate ~6% gross or 10% annualized. 6 months closing. It's a small bank in the Baltimore area with about 16 locations. I believe the spread exists because BCSB only trades ~30-50k per day. That said i was able to get a decent position, sometimes by taking liquidity per leg. BCSB holders get 2.08 FNB per share

 

8K here:

http://www.sec.gov/Archives/edgar/data/1391137/000119312513264384/d556141d8k.htm

 

Informational Brochure here:

http://www.sec.gov/Archives/edgar/data/37808/000110465913052354/a13-15780_1425.htm

 

And shameless plug where I'll update as more info comes out:

http://valuecaptrader.wordpress.com/2013/07/18/bcsb-fnb-merger-arbitrage/

 

Thoughts always appreciated!

[constructive]

Do you do a lot of merger arbs? I do very few because my target is well above 10% annualized.

 

Do you prefer this trade to VCBI - USBI and MFLR - INDB? It looks like both have slightly larger spreads. http://www.sinletter.com/merger-arbitrage/

[Guest wellmont]

are you on twitter and how to subscribe to your blog via rss?

 

This is a small merger arb play with a good return, i calculate ~6% gross or 10% annualized. 6 months closing. It's a small bank in the Baltimore area with about 16 locations. I believe the spread exists because BCSB only trades ~30-50k per day. That said i was able to get a decent position, sometimes by taking liquidity per leg. BCSB holders get 2.08 FNB per share

 

8K here:

http://www.sec.gov/Archives/edgar/data/1391137/000119312513264384/d556141d8k.htm

 

Informational Brochure here:

http://www.sec.gov/Archives/edgar/data/37808/000110465913052354/a13-15780_1425.htm

 

And shameless plug where I'll update as more info comes out:

http://valuecaptrader.wordpress.com/2013/07/18/bcsb-fnb-merger-arbitrage/

 

Thoughts always appreciated!

[nnayyar]

I tend to look at some of the 'hairy' deals such as NXY and DELL but if I'm always open to them. I don't like to tie up too much capital unless there is a decent spread and I understand the risks. The MFLR deal looks a little bit small, 1/2 the size of BCBS. The VCBI looks far more interesting and in an article i skimmed it looked like they already laid off some people due to the merger so another high probability one. Let me dig into this and read the documents, thanks for pointing it out as well as the link! I'm glad i posted now lol. Perhaps we should start a new thread with interesting risk arb spreads?

[nnayyar]

Hi wellmont,

 

I'm actually trying to figure out a 'social media strategy' so to speak. I've gotten some great ideas and met very smart people via twitter and blog. I post under @largecaptrader1 on twitter. As for the blog, I actually don't know how to subscribe via RSS but it's something I'll have to look into! I believe on wordpress sites there is a 'follow' button which should alert you on any new post.

 

 

[Guest wellmont]

already following. :)

 

Hi wellmont,

 

I'm actually trying to figure out a 'social media strategy' so to speak. I've gotten some great ideas and met very smart people via twitter and blog. I post under @largecaptrader1 on twitter. As for the blog, I actually don't know how to subscribe via RSS but it's something I'll have to look into! I believe on wordpress sites there is a 'follow' button which should alert you on any new post.

[nnayyar]

Wellmont, Thanks for the follow. Send me a message or DM if you like?

 

Constructive, I did some quick work on the two arbs you mentioned and they both like high probability. MFLR is about 32MM so might be even too small for my account. VCBI is very intriguing, they are located about an hour away from Baltimore in VA, basically a DC suburb. BTW, DC and its suburbs are now one of the richest places in America (government contracting pays well!)

 

VCBI - Going through the filings, I can't seem to find the date of the Shareholder meeting to vote on the merger. I see they had a meeting in April the merger was not on the proxy. And as of last quarter report, they company is still aiming for Q3 close. Which leaves ~2 months to file the proxy, amend, vote, and close. Any thoughts on the timeline? I think the biggest risk to BCSB is delay in timeline.

 

Also, on a small note, the spread on both legs of VCBI is pretty wide when I checked, 0.10 and not a lot of posted liquidity. My strategy in BCSB was to post a bid for some notional size (500 or 1,000) when hit, quickly hit the bid on FNB for correct ratio as FNB traded at tight spread and ample liquidity for small chunks. Unfortunately our front end does not have spread trading orders but that's another story.

 

Thanks for pointing these out, would have probably missed it.

[augustabound]

*

As for the blog, I actually don't know how to subscribe via RSS but it's something I'll have to look into! I believe on wordpress sites there is a 'follow' button which should alert you on any new post.

 

I use Netvibes (free version) for my blog reader, google alerts and sec alerts. 

 

Netvibes allows you to add an rss or a url to create a feed. 

 

[nnayyar]

Just listened to FNB call, the company has stated that they are hiring people in Maryland and Baltimore which is a good sign. Sounds like leadership and some IT solutions in place. Management seemed to be impressed with the caliber of talent, mentioning it a few times. Still no word on exactly on timing of proxy etc.

 

I am embarrassed to miss this, I had an error on my excel spreadsheet, but better to catch it now then later; FNB pays a 0.12 dividend quarterly, so if we think 6 months, this reduces the spread by 0.24. This reduces gross to 5.7% and ~10% annualized. Keep in mind i include 0.31 in margin expense (2.5% borrow rate since using leverage) so adjust your return assumption accordingly. Rookie mistake!

 

[nnayyar]

FNB has opened a HQ location in Baltimore, expected move in before end of 2013!

 

http://finance.yahoo.com/news/f-n-b-corp-establishes-123855263.html

 

Just a question of timing now...