Monsanto (MON) Merger Spread Widens as Doubts Grow

September 15, 2016 12:20 PM EDT

Find out which companies are about to raise their dividend well before the news hits the Street with's Dividend Insider Elite. Sign-up for a FREE trial here.

The merger arb spread on yesterday's massive $66 billion takeover of Monsanto (NYSE: MON) by Bayer is heading in the wrong direction, according to StreetInsider's Merger Arbitrage tracker. Yesterday, Monsanto agreed to be taken over for $128 per share in cash but today the stock is trading down to $104.56. With the drop, the spread has widened by 2.5% to 22.4%. As a comparison, the spread on the deals that are expected to close would only be a few percentage points. Meanwhile, the spread on Anthem (NYSE: ANTM)/Cigna (NYSE: CI), a deal that is expected to fall apart, is 30.8%.

If the deal goes through investors can make a return of 22.4% for doing no work. However "if" is the key word. The large spread is a major red-flag.

With the deal not expected to close until the end of 2017 there is a lot of time for things to go wrong. Politicians are already clamoring against the deal and antitrust attorneys are readying their pencils.

Some arbs only see a 50-50 chance of the deal closing.

Serious News for Serious Traders! Try Premium Free!

You May Also Be Interested In

Related Categories

Mergers and Acquisitions, Rumors, Trader Talk

Related Entities

Definitive Agreement

Add Your Comment