Long term investors often frown upon arbitrage trading, particularly takeovers. These types of trades are high risk and short term and need a very different skill set. The recent falls in market price have opened up additional opportunities to profit.
A takeover is a very dynamic situation in which there is always the buyer, the target and the shareholder, all of which are sensitive to a whole gamut of issues. Profits that look within reach can disappear into nothing for all sorts of oddball reasons. If that happens, you will be left holding shares in a company you may not want to own.
That being said, there are 2 takeovers on the ASX that I have been watching carefully recently. In my opinion, both represent a short-term, high-risk strategy with the potential of a good return.
A very risky business
Liquefied Natural Gas Ltd (ASX: LNG) announced on Friday that it has entered a bid implementation agreement with Singapore-based LNG9 PTE LTD. This off market deal values LNG's shares at US$0.13 each. This approximates to AU$0.198 per share, which is a 72% premium on Friday's close of $0.115 because of last week's sell off.
Of course with high rewards comes high risk. LNG has made it clear that it can only fund its operations until the end of this quarter. It has also secured bridging finance to carry out this deal, which will last until Q3 of 2020.
Clearly this is not for the faint of heart. There is a fulsome set of criteria that needs to be met in order for this to go through. It also has what is known as a 'no due diligence' restriction. This restrains LNG from discussing issues with other competitive bidders without the buyer's consent.
It appears to be a very good alignment of capabilities and assets. LNG's port and pipelines in North America will complement the LNG9 operations, and its patented optimised single mixed refrigeration liquefaction technology has always appeared very under exploited.
Storage takeover wars
A range of interested parties has been circling National Storage REIT (ASX: NSR) over the past month. It kicked off with an unsolicited, confidential takeover offer from Hong Kong-based Gaw Capital Partners in January. New York-based Walburg Pincus was next with an additional confidential indicative offer.
A later announcement disclosed that both of these companies offered $2.20, which is 3 cents lower than Friday's close.
However, a third party entered the game on 14 February. Public Storage (NYSE: PSA) has offered $2.40 per share for 100% of the shares in the REIT.
The National Storage share price nosedived over the past week (along with everything else). Because of this, the Public Storage offer price is a 7% premium on Friday's market close price.
At the time of writing, Walburg Pincus had decided not to continue during due diligence and Gaw Capital Partners has not yet indicated whether it is going to lodge a higher indicative bid yet.
None of these offers may progress through to a purchase and they could all fall over. Maybe Walburg saw something that will scare others off also. However, there is clearly a lot of interest in these assets – 3 suitors in 1 month speaks for itself.
