You will have a real hard time doing this. It's trading sub $6.20 because there *is* real FTC risk. Once FTC clears, it will likely go to $6.70 or higher valuing CVRS 40-75 cents in total is my guess.
I like this idea after FTC approval. Until then, I won't touch it at these levels.
Agreed. You aren't buying the CVR's for free now: you are buying the CVR's bundled with the FTC risk for free. I would absolutely not recommend going 100% long with puts at this point.
The deal is at a large premium so even assuming a small chance of FTC intervention (and the subsequent butchering of the share price) quickly makes this less attractive. Very simplistically, a 10% chance of FTC intervention and a subsequent price drop to $3.75 yields a $6.05 break-even price for the merger, ignoring the CVR's. Even if you add in the expected value of the CVR's, above that 10% intervention hurdle the trade quickly gets less attractive. And do you really want to bet on the chances of FTC approval being >90% in this case? I'm not sure.
On the other hand, Alexion is buying a small, speculative pipeline, there are some
issues with its Soliris patents - and they are expiring soon, there seem to be a few companies developing competing drugs out there and the large parent termination fee also suggests confidence at the buy-side. I'll probably keep a small position with the intent of adding later.
Just looking it up on bloomberg, Dyax traded 5-35 cents through the merger price for a month or so after approval, ended up closing at $1.11 through the merger (creating a $4.00 CVR potential for $1.00) If I recall correctly I bought it and puts a bit through so was paying somehting but payoff was high. but then 2015 sell-off accelerated and I ended up selling dyax to free up margin to buy LUK bonds and stuff.
That's a shame, the DYAX CVR's paid out in 2018. Turned out to be a great trade. Though maybe you did better on your other purchases.
