Baxter International (BAX) – Split-off Transaction – $320 upside

Current Price – BAX $43.32, BXLT $41.38;

Offer Price – $1.0752 stock of BXLT for $1 stock of BAX (subject to upper limit of 1.4026 BXLT shares per share of BAX);

Upside – 7.5% or $320 for Odd Lot holders;

Expiration date – May 18, 2016;

Odd Lot holders (less than 100 shares) are not subject to proration;

Special condition apply for this transaction

SEC Filling

 

How to profit from this opportunity:

Buy 99 BAX and sell short 111 BXLT (ratios might change depending on the final exchange rate). Lock in gain of $320. Tender BAX for BXLT. Cover short position after receiving the exchange shares.

Items to pay attention to (many moving pieces in this transaction):

- Final exchange ratio will be determined close to the expiration of the offer, therefore final payoff/loss might differ from the indicated one and depending on how shares move in the meantime this transaction might even result in losses for investors. On 17th of May the exchange ratio will already be known, so one might wait till then for the trade.

- This transaction is further complicated by planned merger between Shire and Baxalta - each share of Baxalta common stock will be canceled and converted into the right to receive both $18.00 in cash and 0.1482 of an ADS of Shire. This is equivalent to $45.43 at today’s prices, a substantial (10%) premium to BXLT share price. But the BXLT shareholder vote date is set for 27th of May (after split-off transaction expires), so the merger will be consumated only after the exchange offer expires.

- On top of all of this Baxter will announce quarterly results on 26th of Apr, Shire on 29th of April and Baxalta is also expected to announce earnings before the expiration of the exchange offer. All of these might have material effect on the stock prices and the eventual exchange ratio.

- This deal is more risky than the standard odd lot tenders usually posted on this site. Do your own due diligence before investing.

Transaction details:

For each $100 of Baxter common stock tendered by you and accepted in the exchange offer, you will receive approximately $107.52 of Baxalta common stock, subject to an upper limit of 1.4026 shares of Baxalta common stock per share of Baxter common stock. The average value of the two stocks will be determined by reference to the simple arithmetic average of the daily volume-weighted average prices (VWAPs), as determined by Baxter, of Baxter common stock and Baxalta common stock (the Average Baxalta Price on the New York Stock Exchange during the three consecutive trading days ending on and including the second trading day preceding the expiration date of the exchange offer (the Averaging Dates and this three-day period, the Averaging Period), which are currently expected to be May 12, 13 and 16, 2016

 

No proration for Odd Lot holders:

Any beneficial holder of less than 100 shares of Baxter common stock who wishes to tender all of the shares and not be subject to proration must check the box under “Proration/Odd Lot” on the letter of transmittal