weiwentg (98.10)

Another arbitrage opportunity: Barr Pharmaceuticals

November 20, 2008 – Comments (1) | RELATED TICKERS: BRL.DL

I lost track of this one, but some time ago, Teva offered $67 a share for Barr in a very friendly transaction. After some worries in the commercial paper market, Teva announced that its lenders agreed to let their unsecured credit facilities remain in place. This will give them enough liquidity to complete the acquisition. The acquisition is expected to be completed by the end of the year.

The stock got as low as $56 in late October, which is about the same time I bought Anheuser. It's at $64 now, which makes for a 4.7% spread. Plugging numbers into my financial calculator with a very rough estimate of 1.5 months to closing, that works to something in the region of 37% annualized - the real results are higher than that. Even if we assume a 12/31 closing, there's less than 1.5 months left until then.

Teva is going to incur some hefty transaction costs for this, especially in the current debt markets. However, that's their problem.

The only worry left is the Federal Trade Commission. The FTC made a request for additional information from both companies on September 9. I'll note that the Merger Fund (MERFX) has established a position in Barr. They've been playing this game for a long time, so I take that as a good sign.