Monday, September 26, 2016

Trading The SolarCity/Tesla Merger (SCTY; TSLA)

Always remember: merger arbitrage is not arbitrage.

From Barron's Stocks to Watch:

Why It’s a Good Time to Play the Tesla-SolarCity Merger
Will the merger between Tesla Motors (TSLA) and SolarCity (SCTY) happen? The market has its doubts, but Baird’s Ben Kallo and Tyler Frank expect it to happen…and that makes this a great time to play the merger:
We like SolarCity as a short-term trade as the spread between SolarCity’s share price and expected Tesla acquisition price is substantial, and we expect the deal to close. Under the proposed merger, SolarCity shareholders would receive 0.11 Tesla shares per SolarCity share, equivalent to ~$23 based on Tesla’s current price, which represents potential upside of >15% from current levels. We like SolarCity as a short-term trade and we expect the stock to catch up to its deal price as the shareholder vote nears.

We are increasingly confident that the merger will go through....