You can use your LO divvy to buy the Jan 2015 53.33 put for about .80. By then we could have a more clearer feel for regulatory approval. An awful lot of smart anti-trust folks worked on this to prepare for FTC eyeballs, but a little put protection is always handy for a good nights sleep. Whoever said this merger play wasn't a get rich quick trade was right on. But successful investing is never easy money.
I don't understand what you're saying. I'm using the current price of RAI (57.75). Where do you get 24.74??
100 shares of LO will be exchanged for .2909 of RAI, giving you 29.09 RAI shares. If your point is that RAI stock may go down precipitously between now and the time of deal completion that's an opinion and of course would reduce the value of 100 RAI. The $5,050 is the cash portion of the 100 LO. But your smart enough to know that so I remain puzzled as to what you say.
Here's what 1 share of LO is worth as of today's valuation with no hype or emotion
Equity: $16.81 (57.80 x .2909)
*******these are the facts of RAI's offer to purchase this asset****
why does the market price LO at 59 as I write this ?
Uncertainty of FTC approval. PERIOD. If you feel the FTC will conclude that the efforts of the transacting parties have successfully insured that no new combined entity will gain an unfair pricing advantage you are passing on a winning investment. That is the issue as simply as I can state it.
A simpler option approach is to sell the Oct 60 put for 1.25 and buy the Oct 59 put for .80
You take in the .45 credit and your risk is getting the stock 'put' to you @ 60 with protection below 59.
But here's the easiest strategy: Buy LO before the end of tomorrow (8/26) and collect the .61 divy and wait (and hope) the deal completes next year. You'll get 2 more payments and appreciation up to 67 based on today's RAI close. Of course the wildcard is successful completion of the deal.
And I'm beginning to think regulatory approval is now more than 70% likely. Don't ask how I arrived at these odds.
I agree that FDA action against menthol is highly unlikely. For me, the much greater concern is FTC action against RAI-LO merger due to market share concerns. Historically US anti-trust regulators do not view kindly at foreign companies stepping in to maintain competitive balance. FTC go-ahead is predicated on BRITISH AMERICAN TOBACCO's significant investment in domestic market. This is what makes approval so iffy, IMO.
Consolidation of KMR and KMP results in 12% premium for them but it looks like acquirer will be punished.
KMI shareholders are left without an invitation to the party, at least in the short term.
The lineup of new customers on the verge of offering post-grad degree programs partnered with TWOU platform will read like a who's who of prestigious American universities
Your math is delusional. LO was mid 40's in March. If deal fails regulatory approval, how will market price LO? Additional uncertainty created by shareholder lawsuits and pending government menthol ban and you might begin to think of $60/share as an extremely high valuation
Any Justice Department official advising a corporation on antitrust strategy prior to a public announcement of the terms of a deal would be committing a felony. Companies simply try to anticipate what regulators will require to satisfy standards of fair competition but every merger is unique. At the end of the day they can only guess and hope for the best. A few former government officials have already gone on record saying that the deal as currently proposed fails to satisfy US anti-monopoly standards.
Here's political reality: Michelle Obama HATES the American tobacco industry. She has publicly stated on numerous occasions that the Newport brand specifically targets young, low income people of color, putting this group's addiction for menthol at high risk for disease and premature death. Attorney General Holder will use his authority as head of Justice Department to deliver a slow and painful death to potential RAI-LO marriage. It's the final impetus they need in putting an end game to the flavored smoke market .... something already accomplished in Europe and Australia.
And if you think Obama and Holder want to punish investors in cigarette companies, Yes, you'd be totally correct
buy out of the money puts to protect against FTC/shareholder rejection. They're cheap... and you'll sleep better at night
The anti-trust folks will likely use the power of approval as leverage to ban menthol cigarettes. This has been an Obama initiative for 5 years. Subtract Newports from RAI-LO business model and you're left with severely diminished value
The problem is that RAI might be 35% lower by the time the deal is completed.....if the deal is completed. Your .2909 might make LO worth less than 60.... which is where the market is pricing it right now.
Market hates uncertainty which is why LO stock is sinking
I'm thinking low 70's, stock and cash combo.
Don't forget to add 3 divy payments ($1.85) because deal will take 9 months to close and we collect the cash in the meantime. values LO @ 73-74.
not too shabby