first off , matrix went overboard with his name calling, but I do believe he is correct on the 10% royalty on gross sales(actual sales minus discounts from PBM which you can call net sales but is not really net as it doesnt take out other costs) they are running at a 165 million annual rate which will exceed the 13 million you are using. You responded because of the name calling which again was uncalled for but you did say royalty payments would remain around 7.5 million in your 2nd paragraph not the 13 million and you did sound like a short.
read it as if you didnt post it, because what you posted was very wrong and bearish.
the last deal I did very similar to this was owned QCOR and sold options on MNK, did very well on that one in two months made 20% I will be trying to add to my position on eroc/vnr today going to double up.
my guess would be yes, one for LRE from ist of jan to merger date and one from VNR from merger date to end of year if you own it during that time frame
yes they have continued to rise the CEO has been good for that company. I am back in BBEP heavily now at average cost in mid to low 7s This is the first arb deal I have done in a year, not many good ones anymore.
actually I lose money if VNR is below 13.23 and yes I realize that but by doing the option my profit potential increased and you assume that VNR will collapse so you must be short MLPs GL with that
but you are a VNR holder now not eroc and what is good for VNR is good for eroc. this will reduce operating expenses on the revenue of eroc and therefore reward VNR which you will now own. both are MLPs and as MLPS RISE or fall either would go up or down but now it will be less expense and more income
max Pain is the price where the most people will lose on options and that is 120 for june 19th. Very very unlikely that it will differ from that price by more than 50 cents IMO
so is bbep but it went from 20 to 5s andhas a book of 16 and is better hedged than eroc and has worked out its loan line of credit, eroc is in trouble without this deal or management wouldnt do it, it is good for both sides.
I did those numbers from memory the actual figure was the one previous of a net cost of $26455 after commissions,distributions and option premium sorry I didnt look it up again but i was close to actual situation from memory. For those nay sayers they can look up my trades on the Oct $16 calls as I was the only one that traded them on friday, the stock sold for less and more than my entry so it wasnt exactly stellar but I liked the return and wasnt going to get picky as I feel this will close by first week of august for following reasons
1) company says 3rd quarter (july aug sept)
2) eroc pays a distribution around first week of Aug by closing prior to ex date they can avoid paying that distribution and go to VNR distribution which is monthly
3) VNR pays its distribution end of july so they can avoid paying EROC holders by closing Aug 1st until thier distribution end of Aug.
I know it is not a lot but it amounts to 2% plus on the deal and if they are figuring they should do it that way for thier shareholders currently.
Personally I own a lot of BBEP and I like the monthly distributions and wish BBEP would start doing these types of deals It wont hurt my feeling if VNR is below 16 at this closing then I get to keep my VNR shares and if cash becomes available I would do many more of these. Yes oil can crash and you can come up with many reasons not to do any deal but reality is that not to do this deal you have to believe that VNR will be below 13.23. possible but unlikely as that is a 20% sell off.
sure I will walk you through it, I bought 10811 shares of eroc at $29788 I sold 20 oct 16 calls for 2580 net this leaves me with 27208 invested and I will get 2000 shares of VNR but most likely I will recieve one distribution of 7 cents per share on the EROC which is $756 leaving me 26472 invested divided bby 20 is $13.24 per share in VNR.
you are wrong on all counts I did what I recommended on friday I bought 10811 shares of eroc and sold 20 contractrs of VNR$16 calls for Oct If you look this up you can see the trade on the options at 1.30 which is where i sold them. The only downside on VNR is below 13.23 for me but the premium on the option makes the arb more profitable if the stock of vnr is above 16 at closing and I am prepared to own VNR at 13.23 if necessary willingly and happily. The return is 20% and I feel this will close by the first week of Aug for several reasons. I have done many arbs and if my money wasnt tied up I would have 10X as much on this arb. In 2008 when the market crashed I made 50% returns doing arbs.
my experience is to ignore the ambulance chasers they come around every merger, no matter what eroc is worth then go figure what VNR is worth using the same criteria you figured VNR then take .185 times that. The real question is can EROC survive without the merger?? This is a good deal for both parties, if you feel eroc is worth more then hold your VNR stock if not then sell it. VNR will be able to reduce EROC expenses and make it more profitable for all stockholders by synergies and reduce interest costs.
but while it is a little higher than some major pharma it is still low compared to most biopharma for comparison sake look at GILD for the low end and CELG for a higher end. we are low middle.
i see that most of them were put on friday and my guess is that it will depend a lot on who was the buyer or seller of that large position friday and what they know. 12000 plus of those contracts traded friday so it will be interesting come tuesday to see if they closed them out
GILD also has that special pass they purchased that will get their application processed sooner so ICPT would have to beat them to the FDA by 6 months or more to beat them to market and what better use than for a drug that would treat NASH if it has good results.
teddy, I would have agreed with you until I saw how VNR has started buying companies and their balance sheet isnt any better than ours, they are doing it by doing stock swaps which dont affect their debt/asset ratio and do not take any cash, at todays low values I think this is a great long term strategy and I would like to see BBEP do that also. I think EIG should agree to it without any difficulty as it improves their situation also as there is more collateral. You need to be wisely aggressive when the blood is in the street otherwise if you wait you are waiting for another QSR