There’s quite the spread developing on Atlantic Power’s shares and preferred shares.
A special meeting of shareholders (record date February 16, 2021, special meeting date April 7, 2021) is going to be held. The Debentures (TSX: ATP.DB.E) have their special meeting on March 18, 2021. The deal after the special meeting of shareholders should close shortly after (presumed) approval.
(NYSE: AT) – US$2.95 (US$3.03 if completed) – +2.7% or +16% annualized
The preferred shares are all in a tight range and roughly the same as well. I will use AZP.PR.A as the lead example:
(TSX: AZP.PR.A) – CAD$21.71 (CAD$22 if completed + $0.30 dividend) – same spread
The management information circular should be coming out very shortly.
Right now I’m happy to leave this as “near-cash” in my consolidated portfolio, earning a return that will not amount to be a gigantic amount in absolute terms, but percentage-wise it doesn’t make financial sense for me to bail out on it unless if I have a really compelling alternate. I’m guessing the relatively wide arbitrage spread is because most others have already bailed out and wanted to take the cash today instead of the cash in April.
Given that there’s no guarantee of the dividend, I would rather take on the risk of currency exchange rates rather than the risk of the board closing the deal days before the quarter ends in order to avoid paying out the dividend.
I am reasonably sure you will receive an end-of-March dividend.
Actually that’s a good point considering the common and pref meetings are in April.
The circ was just filed last night. The background shows a pretty poor negotiation attempt with the indicated range of $2.75-3, AT countered with $3.03 and got filled the next day. If there was ever going to be a shareholder asking for a higher price, it will be in the next few weeks.
On the close of the deal, I assumed there would be some regulatory approvals even after the vote is complete on April 7. Are you certain it would close soon after the vote?
The big constraint is FERC approval which is very likely to be granted but could go further than the April 7th meeting date.
I remain incredibly skeptical of a higher bid, but somebody doing the math on Page 59 and working out how to cut a deal with the existing capital structure had better get going quickly… I do note that the break-up fee was lowered significantly from the original proposal (from $37 million).
Somebody is obviously making a short bet that this merger is not going to proceed (increased volume and obvious bid-hitting). Merger arbs are probably trying to decide this one.
US$2.91 common = 4.1% over 1.5 months = 38% annualized, quite the spread
Spread on the prefs appear to be about the same as the original post, however…
I need to publicly warn everyone that I’ve bought some Atlantic Power (common) for the merger arb in my active account, which means the deal is now substantially more likely to fall through.
Thank you for this disclosure. I see once you bought the shares that the demand from short sellers went through the roof and longs demanded a 280% fee for borrowing (see chart).
Hey Sacha,
Are you using an Interactive Brokers feed for that borrowing data?
Yeah, that’s IB. The spike up apparently was some sort of data aberration, I don’t see that right now, the high rate yesterday was 2.77%.
Well, the deal didn’t fall through, but I still managed to lose money thanks to the big swing in the exchange rate! Still 0/X for trying to play merger arbs!
Be thankful it at least closed at the US$3.03 price level…