Monsanto (MON) Merger Spread Widens as Doubts Grow

September 15, 2016 12:20 PM EDT

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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.

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