Merger Arbitrage: 14% Upside (at C$0.315)
The spread on this merger has widened over the last few days for no apparent reason, creating a potentially interesting opportunity.
Robinhood is expanding its crypto services into Canada through the acquisition of WonderFi Technologies at C$0.36/share. WNDR owns two of Canada’s largest crypto exchanges: BitBuy and Coinsquare. The takeover was announced in May and has already met almost all of the required conditions, including approvals from shareholders and antitrust regulators. The only remaining hurdle is the consent of the Canadian Investment Regulatory Organization (CIRO), which oversees investment dealers. The review is ongoing with no set timeline, but the buyout is expected to close in H2 2025.
For most of the summer, the spread to the offer price sat comfortably in the range of 3-5%, signaling that the market was highly confident the transaction would close. Last week, WNDR shares dropped and the spread suddenly shot up to double digits. There has been no news, updates or any fundamental changes with the takeover to explain the move. WNDR’s trading volume is rather thin at around C$200k a day, so a single seller exiting the position could have easily pushed the price down. The sell-off also kind of lines up with the increased crypto volatility in mid-October. But that shouldn’t have had any negative impact on this transaction. If anything, crypto volatility should benefit the exchange business through higher trading activity and commissions.
The spread is now 2-3x wider than it was just several weeks ago, even as the closing date draws nearer.
The approval from CIRO is hard to handicap. The best clues we have are that the market used to view this as low risk (and nothing has happened to suggest otherwise) and that both companies also seemed confident in getting the consent. The merger circular noted the below regarding CIRO approval:
As Robinhood already offers digital asset trading services and as no material changes to the management and business of Coinsquare are currently contemplated immediately following the completion of the Arrangement, Coinsquare does not anticipate any delays and is confident that CIRO will approve the change of control resulting from the Arrangement.
What makes the approval tricky to handicap is that this is the first time a Canadian crypto exchange is being acquired by a foreign company. Canada rolled out a strict new regulatory regime for crypto exchanges in 2023. Before that, foreign platforms operated in the country with minimal oversight. The new rules changed that. Every exchange now has to register with CIRO and meet requirements on capital, custody, and client asset protection. Most of the big international players, including ByBit, Binance, and OKX, decided to pack up and exit Canada in 2023 rather than comply. Coinbase, on the other hand, stayed and managed to secure a “restricted registration” in April 2024, which lets it continue operations under very tight limits, e.g. not being allowed to open new accounts. At the time, CIRO said that Coinbase planned to apply for full registration, but that still hasn’t happened.
At a quick glance, it’s hard to tell whether the big firms left Canada because CIRO approval is genuinely difficult to obtain, or because the broader regulatory framework has simply become, as ByBit put it, “too complex and economically non-viable” for a small market like Canada. The latter seems more likely. Binance also hinted as much, noting that “new guidance on stablecoins and investor limits made the Canadian market no longer tenable”. Robinhood is the first big international player to enter (or return) to the Canadian crypto exchange sector. CIRO has approved a few new local players recently – Ndax in December 2024, and Shakepay in January 2025. As the merger circular points out, Robinhood is already a well-established player in the crypto space (revenues from crypto stood at US$626m in 2024), so there are no obvious reasons why it should be denied the approval.
The potential downside to pre-announcement levels is around 20–30%. However, the actual downside could be different. On one hand, Q2 results released in mid-August were weak, with revenue down 16% YoY, and operating losses widening. On the other hand, the broader crypto exchange sector has been doing great. Since the WNDR deal was announced, Coinbase is up 63%, and Robinhood (though not a direct crypto play) has risen 155%.
There’s also a bit of built-in downside protection from other potential bidders that surfaced during the sale process. Party A offered C$0.35/share, while Party B came in slightly higher at C$0.39–0.42/share. Interestingly, management didn’t seem to engage with either of the parties and instead used those proposals as leverage to extract a higher bid from Robinhood (the initial offer was at C$0.31/share). If the current takeover falls through, there’s a chance the previously interested parties might resurface.
Other notes and details
- Shareholder approval, antitrust clearance, and court consent were all received in July. The deal also required sign-off from earn-out rights holders tied to one of WonderFi’s prior acquisitions, and it was also granted that same month. The only remaining approvals are from CIRO and the Canadian Securities Administrators (CSA). According to the circular, the CSA has effectively delegated the review process to CIRO.
- Robinhood has a bit of a controversial reputation and its track record is not the cleanest. Between 2019 and 2025, it paid roughly US$300m in fines for various compliance issues. It doesn’t sound great, but in the crypto world, these things are common: Binance paid a $4.3bn penalty in the U.S. in 2023, OKX got hit with $500m this year, BitMEX also paid $100m, and just yesterday, Canadian exchange Cryptomus was fined C$177m. So Robinhood’s record isn’t exactly an outlier and fits well within the industry standard.
The “no apparent reason” has turned out to be a regulatory delay of 6 months. Looks like someone knew ahead of time. I’m not sure what to make of “integration enhancements require additional development work and regulatory approval” and whether that risks the whole deal.
Unfortunately, that was not known at the time of my post (at least not in the public domain).
Due to “the fact that certain integration enhancements require additional development work and regulatory approval,” the companies now expect closing in H1 2026 vs the H2 2025 previously. No additional details on the delay have been shared, so it’s not clear what is actually happening behind the scenes. The approval process has turned out to be more complex than expected, though the positive takeaway is that the deal has not been blocked outright.
https://www.sedarplus.ca/csa-party/records/document.html?id=4bff2eedae267e6724030dbc91294c7c36526c031652e39fe7d0487456b5e7d0
I think Vlad wants to arb the Canadian dollar collapse after the crazy budget.and Canada’s severe economic problems.
Robinhood has exercised its right to extend the outside date from November 14 to December 19. Closing is still expected in H1’26. WNDR expects the outside date to be extended again.
I believe the market is worried that Robinhood will cut the price of the buyout. A few years back, when the crypto markets fell and they were buying out Ziglu, they slashed the offer price; they later cancelled the deal altogether. I guess we will find out more as we get closer to the outside data of December 19th.
They already said they were expecting to further extend the outside date, so 19 Dec will likely be a non-event.
“The parties are discussing an amendment to the Arrangement Agreement that WonderFi expects will, subject to final agreement, further extend the outside date of the Transaction to allow for the additional time required to close the Transaction.”
“Discussing an amendment” is the key here. That doesn’t mean they will extend without extracting something in return. I’ve got a position here and am hoping that the price of Bitcoin holds up for the next 2-3 weeks, it will be harder to cut the price then.
Even without a deal, is there much downside left?
Pretty deep downside. WNDR traded around C$0.2 even before the weak Q2 results.
And what used to be a positive backdrop for WNDR, the broader crypto exchange sector, is having a tough time recently.
So this is a merger arb trade that depends on Robinhood following through with the deal, not something we can hold for the long term for fundamental undervaluation thesis.
I’d add that multiple other bidders emerged during the sale process with offers ranging from C$0.35-C$0.42. But as you say, the broader industry environment has worsened, so it’s not clear whether they would return with the same offers.
Thanks! I don’t know much about crypto trading platforms, but thought the increased trading activity would be a positive, but maybe smaller players like WonderFi are now worse positioned.
But for a merger-arb trade where regulatory approval seems possible, if the parties want to, this seems like a dream setup with up/downside 1:1 (or even better?). Need to better understand the company, but Q3 figures are positive – still don’t know what the market expects from such a company in terms of growth. I don’t see any buyer remorse with Robinhood exercising the right to extend the outside date. Also, given it is such a small target and Robinhood gained the market value of WonderFi in a good month…
1:1 in mergers is awful..no professional would seriously consider such horrible odds.
I think 1:1 in terms of up to downside and not implied probability. Any merger arb trade has much more downside than upside.
So merger arbs in general are terrible, because it’s hard to be comfortable with a large position size (which I think is determined more by the potential downside than the upside or the winning odd of the trade).
Marko has a point and I was being a little facetious. Generally the odds should be probability weighted. So if you think 70% change to make 7 cents and 30% change to lose 15 cents, then yes the odds are nearly 1:1, which are poor odds. You’d either need to be far more sure than 70%, say 90%+ or the loss in the minority case is less than you think. Given Wonderfi is pretty much a *piece of junk*, a mediocre, overpriced crypto broker and if we end up in a crypto winter 2.0 on top , a break could have even more than 15 cents downside. Yes, another low intelligence Canadian broker might overpay 30 cents later on, but I don’t think the market would wait around to find out. Remember, the Canadian broker already has licenses, they don’t really need to pay up for Wonderfi. It works much better if you overpay because you need a license , such as a foreign entrant.
to revise this based on what I read crypto and brokerage licenses in Canada are separate in Canada. Ciro regulates them differently so it could be useful to a domestic participant who has only stock trading and wants a new separate division. IBKR comes to mind , unless they want to build their own crypto platform will have to partner or buy into a Canadian registered platform.
I know the answer is likely to be DYODD, etc, but I’m after advice from saner minds. I’m currently up 7.5% on WONDF. Given the uncertainty over crypto winter and a potential merger break (or extension on Dec 19), should I grab what I can and look for better ideas in the mean time?
The ouside extension got moved: https://www.wonder.fi/press-release/wonderfi-announces-extension-to-the-outside-date-for-robinhood-transaction
Outside date pushed again…
WonderFi Technologies Inc. (WONDF.NaE) (“WonderFi (WONDF.NaE)” or the “Company”) today announced that it has entered into an amending agreement (the “Amendment”) to the arrangement agreement dated May 12, 2025 (the “Arrangement Agreement”) with Robinhood Markets, Inc. (HOOD.NaE) (“Robinhood”) providing for, among other things, an extension to the outside date for completion of the proposed indirect acquisition by Robinhood of all the issued and outstanding common shares in the capital of WonderFi (WONDF.NaE) (the “Transaction”) to June 1, 2026.
CIRO approval definition was also expanded to include approval of post closing integration plan. Not sure why they decided to do that.
Have you looked at the fee schedule for Bitbuy? It is the least competitive of the crypto exchanges in Canada. Even worse than Coinbase if that is possible. Without a deal, Wonderfi is probably worth something like 5 cents. Another problem is Canada has zero competitive crypto market. Have you looked at the CEX features? Staking is limited to like 6 coins, none of which are stablecoins. Earning yield is mostly banned. Fees are high when global on boarding and digital wallets usually have 0.0% usdc onboarding. No foreign currency support, limited transfer options. Very poor crypto debit card options. Overall, the market is limited and of low quality, and self custody wallet-exchanges have way more crypto freedom. Hood is literally one more entrant into a dying CEX crypto market – dead even before it gets off the ground – at least in this country and unless things change (don’t hold your breath). So I can see why Hood has the condition that if CIRO does not allow their Integration Plan, they are happy to bail on this junk.
The only issue is we don’t know the Plan. CIRO is unlikely to approve anything that is more than a mere clone of the status quo and Hood may not be interested in that. The only consolation is that the Plan is probably more to do with custody mechanics than feature-set, although given bureaucrats are running everything I have no idea if they have a problem with superior end-user feature set, or dictating what coins are allowed or what rewards or credit/debit crypto products they can offer. If anyone knows what the Integration Plan looks like that would be a key data point but otherwise I would rather scoop this up after a deal break at 5 cents!
I see your point on the poor product features, but isn’t the thesis that Robinhood is buying the license rather than the legacy business model? They are also paying to skip the standard regulatory approval process for the new entrant and acquire 1.6M KYC’d users. Once they have the CIRO registration, they can implement their own pricing and tech stack. Regarding the valuation, 5 cents seems incredibly harsh given the stock traded at 20–25 cents pre-deal and the proxy revealed two other bidders offering 35–42 cents.
Yes the other element is that if hood bails on Canada here it probably is never coming to the country which seems harsh given hood like ibkr and coinbase are here and also it seems unfathomable that Canada will be the only G10 nation without all 3 or with a broken product ..but a lower price negotiation is possible too..
the 5 cents is no joke imho. maybe 10 cents. when you buy something for regulatory clearance only but can’t improve the product it obviously isn’t worth as much. just because it was 20 cents before the deal doesn’t mean it was worth 20 cents. but anyway where it stops on a deal break is uncertain but downside exists if Circo bureaurats exasperate hood. hood has all the power to walk here, even if there are lawsuits and accusations. but the base case is the integration plan being allowed. it is also possible Ciro will allow all the crypto brokers to develop their products over time with new feature set so hood saying the regulations are unworkable would be temporary..still other crypto brokers have left the market due to limited crypto features and freedom to innovate.
Ideally we can short BIGG (the no.2 player behind WNDR) to hedge the deal break risk?
Unfortunately it’s too illiquid.
I’m removing WNDR from active ideas. The spread has tightened from 40% to 12.5% over the last few months, and the stock is now back at the write-up levels. The recent operating performance has been underwhelming. Robinhood likely does not care much about that, as it is primarily acquiring WNDR’s licenses. But if the deal breaks, the downside could be massive. Orion Digital (one of the early backers of WNDR) has exited its remaining ~C$8m position fully in January. Regulatory risk remains a wildcard, and at this point, I don’t think the remaining spread is worth the wait.
so you think the merger is about to break ? What reason does Ciro have other than total desire to annihilate financial ties to the USA. and what is Canada’s future without access to USA services and economy? is the idea that Canada is choosing a model of total repression and poverty like Europe , North Korea , or communism like China ?
I simply think it’s a bit of a wildcard and that the remaining spread does not justify the risk. I cannot speak to the regulator’s intentions in Canada, but recent history suggests a very strict approach.
From the write-up:
I think Bitbuy didn’t like some of the limitations on profit potential. For example the new custody rules released last month neuters vertical integration in crypto space and makes Robinhood and anybody else a glorified front end. Not sure if Coinbase is a full custodian in Canada. Custody is like float? it allows you to have more scale and profitability I imagine?
Do you think a break on fi takes it to 15 cents? they aren’t very profitable and self custody in crypto is growing ..something banks never had to deal with in the history of banking! Ciro can never regulate that just in and out ramps and even that can be foreign.
Expected value is negative unless odds are 85% or higher to close and that assumes a break to 15 cents as wonderfi makes almost no money for years despite a booming crypto market. without Hood’s scale I’m not sure they have any future..so the question is if the odds are 90% or higher to justify the current spread IMHO.
guess author was wrong and lost a ton of money on closing out 20% lower. best to do your own analysis.
Congrats on the trade. When I closed this, the spread was only 12.5% and operating performance was deteriorating (which in turn made the downside far larger than I thought initially). With hindsight all trades seems easier.