Friday, September 16, 2016

"Someone Just Placed A Massive Bet That The Solar City, Tesla Deal Fails" (SCTY; TSLA)

The headline is a bit deceptive as we don't know if the trader has either a long position in the stock they are dirty hedging or a synthetic long they are trading around. SCTY $17.28 up 18 cents  TSLA $205.40 up $4.98.
From ZeroHedge:
Following June's proposal, the merger of kissing-cousins TSLA and SCTY was confirmed in early August. Since then, the market has begun to aggressively price out the probability that the deal goes through as SCTY tumbles relative to SCTY's offer. Even more concerning is the massive bet someone just made that in the options market that the deal will not go through in Q4 as expected.

Remember, two wrongs do not make a right... the market appears to think that the deal will not go through (as SCTY trades well south of TSLA's bid)
And as Axiom Capital Research's Gordon Johnson explains, after Parsing Thru SCTY’s 317pg S-4 Filing, We See Burgeoning Risk to Deal Closure...
317 Page Form S-4 Suggests TSLA Failed To Consider Whether Another Solar Company Was a “Better Fit”. With a number of solar vendors available currently, at arguably depressed prices (the Guggenheim Solar TAN Index is down -30.8% YTD vs. +6.7% for the S&P 500), we blv SCTY’s & TSLA’s joint Form S-4 filing shows TSLA failed to consider if any other solar companies offered more favorable synergies. The evidence? Well, first, following TSLA’s 5/31 board vote approving the SCTY merger offer, Evercore (“EC”) was brought in, & subsequently declared, 6/20, SCTY “the most attractive asset for Tesla in the solar energy industry”, highlighting, at most, ~3 weeks’ of due diligence done. Further, EC didn’t receive SCTY’s financials, including financial results, cash position, & financing needs, until 7/11, or ~3 weeks after it rendered its 6/20 opinion in favor of the merger (before which, as per the S-4, we blv neither TSLA nor EC had access to SCTY’s financial statements, implying it would have been impossible for EC to do a comparable peer analysis). Moreover, while SCTY engaged at least 3 possible counterparties/acquirers in July, ultimately none of them were willing to counter TSLA’s offer. Armed w/ this info, we blv TSLA shareholders are incrementally less inclined to vote yes for this deal before the current 4/30/17 “cutoff date”....
...So perhaps, given all that, this 11,000 lot (1.1 million shares) $10 Put trade expiring in January...
Is not such a crazy idea after all.