Thursday, 15 January 2015

Oi PT merger arbitrage is it safe?

The Oi-PT merger day by day looks like a more fascinating story. Since my last post the following has happened:
1- The merger terms have been revised with a smaller position in Oi being attributed to PT shareholders and a PT SGPS carrying that smaller Oi position plus the Rio Forte debt plus options on Oi (which are the only destination possible for any recovered cash)
2- Oi has decided to give up on the idea of a big international telecom and sell the portuguese assets to Altice, signing a deal
3- Much more is now known about why and when was the Rio Forte investment decided and who knew about it
4- The portuguese CMVM decided to intervene by stopping PT trading until the PT SGPS administration decided to give information to the market about the possible cancelation of the deal
5- According to today's news, former PT chairman Henrique Granadeiro  has sent a letter to CMVM suggesting that the deal can be canceled (or changed) since the Oi Vice president was also PT SGPS CFO and since  at the time Oi CEO was also CEO of PT Portugal. He also mentions that since they are not divisible then Oi had to know about the Rio Forte application. 

So, yes the spread as widened but also the arbitrage as turned riskier. And as such maybe the stay out idea I mentioned in the previous post is more than ever a good idea.

So the arbitrage might be a mine if the deal goes through on current terms. Let alone the arbitrage, if the deal goes through maybe only going long Oi would be a good idea since the possibility of both the merger not working and the PT Portugal sale to Altice (for more than 7000M euros) not going through might already be partially discounted on Oi share price.

The problem is will the deal and the merger go through on current terms? The argument for the cancelation is: some minutes ago PT has just disclosed so I will stop explaning and just leave the link

disclosure: no position and I am still reading the file above so I can not really know what I will decide at the end but most likely it will continue that way

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