Current Price – $515
Expectect Payout – $531-548
Upside – 3%-6%
Expiration Date – Q1 2018
This idea was shared by Eldar.
In Sep 2017 ASHG announced it will be acquired by CRH.
The crux of the news sets a range of $531-$548 (spread of 3.1%-6.4%). The deal should close any day.
While the final amount of the merger consideration will not be determined until following closing of the transaction due to fluctuation of certain components thereof through closing, the Company currently estimates that the final amount of merger consideration will be in the range of approximately $449 – $454 per share based on Ash Grove’s balance sheet as of June 30, 2017.
In addition, prior to closing of the transaction, the Company intends to pay dividends of excess cash currently anticipated to be in the range of approximately $617 – $706 million in the aggregate, or approximately $82 – $94 per share of outstanding Common Stock and Class B Common Stock, and $86 – $99 per share of outstanding Class D Common Stock.
If government approval were a problem, we would have heard about it by now.
So to lose on this arbitrage, CRH would have to find a deal-breaker problem. As CRH has been intimately involved with ASHG since before the deal was announced (Sept2017), as a customer and bidder, the chance of such problem is near zero.
The risk reward approximates: 1% chance of losing ~50%, or 99% chance of making 3% to 6% any day now for the next 2 months.
I think the risk-reward is near the high end of the above because I think ASHG, based on cement pricing at all-time highs, will dividend close to maximum estimate of $94/share (ASHG has enjoyed favorable pricing on its products recently).
If deal collapses, the cash build at ASHG and competing bid should cause ASHG to trade above where it traded prior to CRH deal announcement, i.e. less than 50% fall likely.
From VIC write up in March 2016:
Cement prices have broken out. After being range bound in the high 70s/low 80s per short ton, Martin Marietta’s ASPs (they bought Texas Industries in 2014) reached $102.44/ST in Q4’15, up 10.5% YoY. They are guiding to 2016 price realizations of $110-112/ST, +8.4% YoY. As cement consumption inches higher, it gets closer to the supply wall that exists because of how difficult it is to build new capacity in this country. U.S. cement shipments increased 3.8% in 2015 to 92 million MT. U.S. production capacity remains at 100 million MT, virtually unchanged from my original writeup on ASHG back in 2012. ASHG controls approximately 8% of that capacity.