Castlemaine Goldfields takeover by LionGold Corp of Singapore

LionGold Corp has offered to takeover Castlemaine Goldfields via an all scrip (share) takeover.

It is offering 2 LionGold Corp shares for every 9 Castlemaine shares.

Besides that, LionGold Corp has entered into a Subscription Agreement to subscribe for 11.4% of the enlarged number of shares after the subscription.

Usually I feel that once a party enters into a Subscription Agreement which is not subjected to any precedent conditions, it is more likely that the takeover will happen, as the acquirer has some skin in the game, thus more committed to the cause.

If we price up the deal using Merger Arbitrage Manager,

(there are some limitations as this is a cross border takeover and MA Manager has yet to implement the capability of including FX rates in the deals.. this shall be taken into account for the development of a new version of MA Manager)

It is assumed in this case the FX rates for SGD:AUD is 0.772. The deal should take roughly 3 months to pay out date.

There is a 11% spread to be earned. Usually in a cross-border deal, there is more premium in it unless it is a very big deal where Merger Arb traders around the world would jump on it.

Very possibly though it might be hard to get borrow in the LionGold Corp stock in Singapore, which might explain the massive premium.

The deal is conditional upon 50.1% acceptance, which is a reasonable and not high level. This is not a scheme of implementation thus does not require shareholders to vote.

Adding to portfolio.

Argentina expropriates YPF from Repsol

In an unrelated matter, it is amazing that Argentina has taken the course of expropriating YPF from Repsol. Given that it could have done a takeover via the equity market at fair market value (or excercise certain rights given the government still holds the "golden shares"). Expropriating assets leaves such a negative sentiment that I believe would turn investors away from Argentina. Probably this will benefit Brazil, Mexico and other Latin America countries.

I guess there must be a correlation between rising commodity prices and risk of expropriation. Argentina has been a net importer of oil and has been a huge strain on their fiscal numbers and YPF has been showing declining numbers in production despite political pressures to increase investments to increase production.

One must wonder if Argentina is going to default if it does not appropriate assets. I do not have the numbers at hand but to take such drastic measures, one can either be trying to assert/show their "leftist/reformist" ways or seriously cash-strapped.

SouthGobi an opportunity or exit?

SouthGobi has been hit by 2 news.


Firstly, its auditors Deloitte & Touche LLP has resigned as auditors on its "own initiative". The statement itself does raise a huge question mark on if anything fishy is going on in SouthGobi.


Secondly, the more worrying part, the Mongolian government is seeking a temporary halt of exploration and mining licenses for the company’s flagship Ovoot Tolgoi coal mine, SouthGobi said, following Aluminum Corp. of China’s bid for control of SouthGobi. 


In my view, China has a great need for coal. Mongolia has coal. Despite China having loads of coal, the bottleneck of their railway infrastructure will not be solved instantaneously, other factors as well of course but I'll spare the details. China will exert its political will on Mongolia. Mongolia still depends on China and if I am not wrong, according to the statistics in 2011, Mongolia has overtaken Australia as the number 1 Coal exporter to China.


Mongolia still has to build on their infrastructure to access, if I am not wrong, Vladivostok for port access to export their coal. So for now, they have to rely on China. Although it seems like Russia is increasingly interested in mining assets in Mongolia. 


From an article I read online,


"A ton of coking coal from Australia costs about USD 185, while a ton from Mongolia costs USD 62. China imports coking coal from Mongolia through the Sehee border point."


China will continue to secure coal from Mongolia.


I believe this is a buy opportunity.

Vanilla cash deals... 444.HK and NCI.AX

444.HK offer price is 2.12. Last traded 2.10 . NCI.AX offer price is 1.84. Current price is 1.80 Will update this post with the screenshots from Merger Arbitrage Manager.

444.HK using Merger Arbitrage Manager.

NCI.AX using Merger Arbitrage Manager

Bank Danamon takeover by DBS Update

According to the the Indonesian capital market supervisory agency, DBS needs to sell down their stake to 80% after buying up Bank Danamon. They will have a period of up to 2 years to do this and another 2-year extension if their investment is at a loss greater than 10%.

This is similar to the case of Maybank buying PT Bank International back in 2008. The deal then went through hiccups as the Indonesia regulators canned the deal close to the end of the tender offer before allowing it to go through in the end.

I would expect there would be discussions between the 2 countries, Indonesia and Singapore, before and after this deal was announced. Given the proximity and relationship between the two countries and how Temasek is invested in assets in Indonesia, I would expect this deal to go through.

Again this is not the largest bank in Indonesia, it is the sixth largest bank.

Great Wolf Resorts ..a US Deal

Been reading snippets of this deal over the weekend. Seems like a takeover battle between KSL Capital Partners and Apollo  Global Managemnet. It is currently trading above the $7.00 offer. Last price was $7.43.

I am always cautious about entering a deal trading above its levels. Deutsche has the company target price at $7.98. If you look at it, will Apollo Global Management come in and pay the full price?

But at least you know the downside is $7.00 dollars. Roughly 6% upside and 6% downside.

Merger Arbitrage Manager iPhone App

An interesting app has surfaced related to merger arbitrages. In the past month, I have been working with a company to develop an app for iPhone to evaluate merger arbitrage deals and to calculate te risks involved.

I believe this shall be an interesting tool to have as it allows us to value the deals on the go without any cumbersome spreadsheets.

Just a simple app that allows you to calculate, save and review deals at a later time.

Visit in iTunes Store,  Merger Arbitrage Manager

Let me know if there are any feedbacks/suggestions

Lithium One takeover by Galaxy Resources

Galaxy has put in a merger request with Lithium One and has been accepted and recommended by the board. According to the Lithium One's financial advisor, BMO Capital Markets, they are in an opinion that the deal is fair.

Problem with this deal is Galaxy is suspended as they are going to raise capital, A50million to strengthen the merged entity's balanced sheet. If in the event the deal fall through, they will use the money for acquiring new assets.

There seems to be a window of opportunity here. The offer is CAD $ 1.55 . This CAD $1.55 is the determinant of how much galaxy shares one can get. Currently it is pegged at 1.8 but if in the capital raising for Galaxy is priced below A$0.829, the multiplier will be adjusted accordingly.

For example if they raised capital at A$0.80, then at the exchange rate of 1.04, you will receive 1.86 shares of Galaxy for each Lithium One shares you own.

 Lithium one traded at CAD 1.28 at yesterdays close. This is like a 21% discount to the terms. I guess investors are hesitant right now as you cant trade Galaxy. But in my opinion, one can go long Lithium One and short either another lithium producer or short a market index option (ASX or TSX) if they want less company specific risk. This is called texas hedge. Probably when Galaxy shares are trading again, they will reflect somewhere close to CAD $1.55 and the investor can get out of the trade if they want or try to get borrow in Galaxy and do the proper hedge.

I wonder how long will this opportunity exist.

Roche takeover of Illumina (US Deal)

Currently Illumina is trading above the offer price of $51. It is trading at $52.61

Worth a shot at shorting the deal?

Any readers out there that care to share their thoughts on this deal?

Bank Danamon Indonesia takeover by DBS Bank

Offer price of 7,000 rupiah. The last closing price is 4,600 rupiah.

DBS is buying the stake held by Temasek, the Sovereign Wealth Fund of the Singapore Government.

DBS will buy 67% from Temasek and issue 439 million shares at SGD $14.07. The price is 2.62 times the book value of Bank Danamon Indonesia.

Waiting to see where Bank Danamon Indonesia opens at.

Aluminium Corp of China, CHALCO to buy 60% of SouthGobi - 1878 HK

SouthGobi, 1878 HK or SGQ CN (listed on TSX), has received noticed from CHALCO or Aluminium Corp of China (2600 HK) of a proportional takeover bid for up to 60% of Southgobi's outstanding and issued common shares. 


SouthGobi has also been informed by its 57.6% major shareholder, Ivanhoe Mines Ltd. (“Ivanhoe”), that Ivanhoe has signed a lock-up agreement with CHALCO, committing to tender all of its shares held or thereafter acquired by it during the Offer Period of CHALCO into the Proportional Offer. 

The Proportional Offer will be made by way of a takeover bid circular under British Columbia law and will be made to all SouthGobi shareholders. If shareholders tender more than 60% of the outstanding common shares of SouthGobi to the take-over bid, a proportional amount of shares will be taken up from each shareholder. SouthGobi has not received any formal documentation relating to the Proportional Offer. CHALCO has advised SouthGobi that it expects to mail the takeover bid circular in connection with the Proportional Offer on or about July 5, 2012. (Quite far away)

The offer price is CAD $ 8.48 or roughly translated to be HKD$ 65.97. Given that Ivanhoe Mines has signed a lock-up agreement I would think the deal should not have any acceptance risk.

The pre-announcement share price for 1878 HK is HKD $51.25 and the current price is HKD $ 59.90. At current levels there seems to be zero premium (or slightly negative premium) in the deal if you take into account that you can only tender in 60% and assuming that the 40% you can sell at pre-announcement price. 

The deal gets attractive around HKD$56, as I would deem you need a bit more premium to assume the risk of the remaining 40% that you can't  tender in.

Usually in these deals where the target is listed in 2 markets, there are always opportunities to arbitrage the target stocks just like doing ADR arbitrages. 

The good thing about the deal is that besides the proportional takeover, the company has entered into a Cooperation Agreement as well with Chalco. I have attached the excerpt from the release on HKSE

"Key benefits under the Cooperation Agreement between SouthGobi and CHALCO include:

•    Coal off-take by CHALCO

– SouthGobi will have the right to offer up to 100% of its salable coal to CHALCO and CHALCO will have the obligation to purchase the coal at market prices for a period of 24 months.

•    Infrastructure support

– CHALCO will assist SouthGobi to procure electricity for its Mongolian business operations either through a direct connection to grid power, or through development of a conveniently located power plant. CHALCO will also provide support to SouthGobi’s coal-haul highway project. "

So at least in my opinion, there will be a support level for the share price of SouthGobi. (when you think of the 40% that you can't tender in)

Customers Limited takeover offer by DirectCash Payments

The takeover offer is recommended by the board. The offer price is $1.27. Currently it is trading 1.23/24

The last price of CUS AU is $0.92 before the announcement of the deal. At the current offered price for CUS AU ($1.24), there is 2.42% premium in the deal which translates to 8.49% IRR if you take a completion date of 15 July 2012.

The offer is done via a scheme of implementation meaning shareholders have to approve the deal by voting. Required 75% votes from 50% of shareholders to approve the deal.

The deal is still conditional upon Customers shareholder approval, regulatory approval (not much risk here), independent expert report, and lastly but not least FINANCING. DirectCash has 25 days to get a committed term sheet to fund this deal.

It seems to be trading at a tight spread given financing is yet to be secured for this deal.

The concern for me is that this deal is roughly worth around US $130 million and DirectCash is just CAD$400 million. Wonder if financing will be an issue here. (Do a check on the debt ratio and current ratio)

With that said , downside risk is roughly 26%. I would probably get some if the price goes to a more attractive level to price in the financing risk.

Possibly entry price $1.22 or $1.23

China Gas takeover Update

The China Gas Long Stop Date has been extended to May 15, 2012 to accomodate the release of rulings by the regulators. It can still be extended further if needed.

Austar Takeover by Foxtel Update

The minority shareholders have overwhelmingly approve the takeover of Austar by Foxtel.

The deal is schedule to pay out by 26th April 2012 if everything goes smoothly. The only impediment currently is the ACCC ruling. It might be granted in time, not in time or ACCC might still flatly reject the deal going through.

Based on current valuations of $1.45 for Austar and the offer price of $1.52, its a 4.83% premium and an estimated IRR of at least 60%. Quite a large spread to be earned which of course reflects the risk inherent in this deal.

In my opinion, ACCC seems to be leaning towards approving this deal. Given where the markets have been heading, even if the deal falls through it would seem the downside is roughly 20%.

Anyone feeling speculative should invest a small sum. Otherwise, continue staying away from this deal.