Author Topic: SWY - Safeway  (Read 71853 times)

Hielko

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Re: SWY - Safeway
« Reply #240 on: January 28, 2015, 11:12:22 AM »
I think that the probability of the deal falling through is less than 0.1%: think it's just some paperwork that now needs to be done to close it since they have FTC approval, shareholder approval and everything else that could be a problem.


writser

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Re: SWY - Safeway
« Reply #241 on: January 28, 2015, 01:58:39 PM »
I agree but the good thing is that the thesis does not depend on that assumption. Probably buying puts is a waste of money but I don't like tail risks on a big arb position that I bought without extensive research. I'll gladly spend a couple of basis points to rule them out.
« Last Edit: January 28, 2015, 02:00:18 PM by writser »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

writser

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Re: SWY - Safeway
« Reply #242 on: January 30, 2015, 06:01:03 AM »
Deal closed. I paid $35.16, will get back $34.92 in cash within few days (hopefully), and end up owning $1.05 worth of CVR's with a cost basis of $0.24. For $.05 / share you could've bought $34 puts in case something would go wrong (I did this partially). I'm suprised this idea didn't gain more traction on this board - imho the easiest / safest opportunity i've seen in a while. Especially if you have a decent broker (IB) you could've bought Safeway on 25% margin, paying only 1.6% interest for a couple of weeks to lever up your position.

I allocated ~25% of my portfolio to this - which was actually conservative but I only had like two days to figure out some margin issues (*) and had limited knowledge of the buyout itself. This timeframe was also a bit too tight to transfer more assets to my IB account to increase buying power.

Things could still go wrong with the CVR's but so far everything is working out.

(*) I didn't want to face a huge margin call in case IB risk management would somehow increase margin requirements while waiting for the cashout. I have lots of illiquid positions and an auto-liquidation would have been a disaster. In hindsight things would've worked fine. Next time I would structure the setup of my accounts slightly different and would allocate a bigger chunk of my portfolio to similar opportunities.

Quote
Albertsons and Safeway Complete Merger Transaction

[..]

Safeway shareholders will receive $34.92 per share in cash, consisting of (i) $32.50 in initial cash consideration, (ii) $2.412 in consideration relating to the previously announced sale of the assets of Safeway's real-estate development subsidiary Property Development Centers, LLC ("PDC") and (iii) $0.008 in consideration relating to a dividend of approximately $2 million (after deduction for taxes at an assumed rate) that Safeway received in December 2014 on its 49% interest in Mexico-based food and general merchandise retailer Casa Ley, S.A. de C.V. ("Casa Ley").  In addition, shareholders will receive contingent value rights entitling them to pro rata proceeds relating to deferred consideration from the sale of PDC and any proceeds from the sale of Safeway's 49% interest in Casa Ley.

Both contingent value rights will be non-transferable and non-tradable.  For tax reporting purposes, Safeway intends to report that the fair market values of the contingent value rights at the time of the merger for PDC and Casa Ley are $0.0488 and $1.0149, respectively, per share, based on third party valuations.

« Last Edit: January 30, 2015, 06:29:46 AM by writser »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

rijk

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Re: SWY - Safeway
« Reply #243 on: January 30, 2015, 06:02:40 AM »
cash portion is $34.92, so cost basis cvrs is $0.23 at $35.15 purchase price, against cvrs worth $1.06

we might need to wait three years to know the actual return, but i think it's safe to say that a decent return looks likely......

regards
rijk

http://www.prnewswire.com/news-releases/albertsons-and-safeway-complete-merger-transaction-300028412.html

thepupil

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Re: SWY - Safeway
« Reply #244 on: January 30, 2015, 06:09:10 AM »
I was a little early to this, but kept making it bigger and bigger and hedging more and more cheaply. As of yesterday, I was 110% long overhedged SWY lol.

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/current-work-outsspecial-situations/msg191690/#msg191690

Hielko

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Re: SWY - Safeway
« Reply #245 on: January 30, 2015, 09:03:30 AM »
I was a little early to this, but kept making it bigger and bigger and hedging more and more cheaply. As of yesterday, I was 110% long overhedged SWY lol.

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/current-work-outsspecial-situations/msg191690/#msg191690
That's a pretty big bet! Did you have that much cash lying around or a portfolio with low margin requirements? I bought a ~40% stake (also hedged) this week which coincided with me having one of my largest idle cash positions since a long time.

thepupil

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Re: SWY - Safeway
« Reply #246 on: January 30, 2015, 10:25:04 AM »
I spoke w/ the margin department at IB and they walked me through how a corporate action like this is handled (I wanted to make sure I wouldn't be force liquidated even though the position is hedged 3X). I didn't have much cash on hand and dialed up the position in a big way once FTC final approval happened. the margin requirement was very low until when the corporate action happens. My account showed negative excess liquidity but was not liquidated because they put it on manual review when there is a corp action (which is what I wanted to make sure of).

One tail scenario that bothered me was if SWY  broke and went down pre-market and, before my options MTM would not have kicked in for margin requirements, so I didn't size up that big until the very last day (when the merger had a 99.9% chance of closing).

I probably wouldn't do it that big again. Even though I knew what i was doing and why it was there, seeing negative excess liquidity in the account was nerve racking. Even though I felt like I checked most of the boxes of making sure I could build a BIG position in the CVR without endangering myself, the mental anguish was just a little much.

For my dad's account i just fully funded the position with cash...much smoother sailing and easy 2 day trade where you get 99% of your money back and left with a juicy residual position.

writser

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Re: SWY - Safeway
« Reply #247 on: January 30, 2015, 11:02:47 AM »
You have balls of steel. Very well done! Even with my 'small' 25% allocation the thought that IB would somehow liquidate my micro cap holdings was scary - however remote the chances of that happening. For you it must have been gut-wrenching :) . Next time I would probably do such a trade in a separate, liquid asset only account.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

writser

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Re: SWY - Safeway
« Reply #248 on: February 27, 2018, 01:10:07 AM »
Today I received the payment for the Casa Ley CVR. A payment of approximately $0.934 / share hit my account. Last year I received $0.017 / share for the PDC CVR and another $0.03 / share is possibly still coming. A little bit less than expected, mostly due to depreciation of the Mexican peso. Still, this was a ridiculously great opportunity. The projected IRR was awesome as you received almost your entire outlay back in a few days and you could mitigate most of the risk with a $34 put. Surprised this idea didn't get more traction on this board. Again my compliments for thepupil, especially with regards to position sizing :) . Well done.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.