AJS Bancorp (AJSB) – Merger Arbitrage with Odd Lot – 11% Upside

Current Price – $14.4

Acquisition Price – $16.0

Upside – 11%

Expiration Date – 24th of January

SEC Filling

This idea was shared by Bart.

 

The bank merger between Northwest Indiana Bancorp (NWIN) and AJS Bancorp (AJSB) is an almost done deal as all the necessary shareholder and regulatory approvals have already been received (the last one was given on the 19th of December). Merger consideration is 0.203 shares of NWIN and $7.20 in cash and there still is a 10% spread, but it's challenging to merger arb this as both stocks are illiquid. Also there is no NWIN borrow anywhere, so there's no way to lock in any profit.

However, "Stockholders of AJSB who own of record and/or beneficially fewer than 100 shares of AJSB common stock will be entitled to receive fixed consideration of $16.00 per share in cash and will not be entitled to receive any shares of NWiN common stock". So there is a possibility to gain $150 almost risk free.

The only caveats are the termination conditions upon which AJSB can terminate the deal in the period from the 3rd to 9th of January if:

  • From the 13th of December to the 2nd of January NWIN weighted average price drops down below $34.37. This won’t be a problem, because there are only 5 business days left and all the time NWIN has traded in mid $40s.
  • NWIN`s share price declines by an amount that is at least 20% greater than the corresponding price decline in the SNL Small Cap u.S. Bank and Thrift Index during the same period. While I do not have data specifically for this index, Invesco S&P Small Cap Financials ETF declined by 8% during the period so far.

I do not think there is a risk of odd-lot part being amended as due to illiquidity there will not be massive amounts of odd-lot shareholders in this case.

Unhedged arbitrage with larger positions might also work as NWIN is trading in narrow range and with share count increasing by only 15% it is unlikely there will be much of the selling pressure after the deal closes.

4 COMMENTS

  1. na

    Thanks for the idea Bart. Where have they announced the “Closing Date”? I think you are using Jan. 2, but I haven’t been able to confirm that.

      1. na

        Thanks for the link. Shouldn’t the measurement period used to determine the potential for a deal termination be measured against Jan 24th? You appear to be using a period that is based on Jan 2. “From the 13th of December to the 2nd of January…”

Leave a Reply to na Cancel reply

Your email address will not be published. Required fields are marked *