1. Thanks for the post, some interesting stuff in there. Have you tried shorting the acquiring stock in these merger arb situations to lock in the spread rather than having to hope that the share price holds up?

    From a very quick look at the situation I’m guessing there are a couple of reasons the spread was so wide on this. Firstly the target had a pretty small marketcap, so it’s hard for actual special sits HFs to put money to work in it because if they have any sort of AuM at all then they’d run into shareholding limits pretty quickly. Depending on what Aussie rules are might actually have to make an acquisition bid themselves! Secondly I’m guessing that it’s hard to get borrow in WAM itself because it’s not a particularly big company and it’s pretty unlikely to be held by institutions who would lend out the stock as they would rather invest themselves than have WAM do it. So if you’re an institutional investor then you can’t really put much money to work buying the target stock in which case why bother when you’ve got other stuff you can focus on, and even if you could buy the target you maybe can’t borrow the acquiring stock so you’re really just doing a long play rather than an arb play which may be outside your mandate or just not what you want to do.

    In any case interesting post, thanks for sharing.

    1. Yes I think you have summed up the reasons for the spread well there Aussie HIFIRE. I think these factors were at play rather than it reflecting some fundamental risk of the deal failing.

      I think we had a fair few sellers of WDE that just contemplated the good price in comparison from months before. This happens a lot with the target company.
      The old holders feel relieved to flick the underperforming company on a large bounce. Yet not thinking about the potential annualised returns from holding in the last month or two and bothering going through the processing of the corporate action.

      Good point about examining whether to short the acquiring stock though, generally worth a look at as you say. I am not sure it would be that easy in this case as you point out. I think of WAM as a fairly large stock but it would all be held by retail rather than institutions. To be honest I didn’t really give much thought to shorting the acquirer here. Knowing my luck the deal would fall through and then WAM would surge to a 40% premium if I shorted it! I continue to be wrong about it in terms of how the large premium remains.

  2. Re the Wilson Shareholder presentations day in Melbourne – it is on Thursday 29 Nov, not Friday 30 November. Regards.

    1. Thanks Denzil for pointing out the incorrect date I had earlier! I tried editing the post now as I don’t want to cause someone turning up the wrong day.

  3. I had a look at the CYA / WLE situation, but from the position of already having middling size holdings in both. More about deciding if I would be having too much in (a) Wilson managed LICs in general and (b) Wilson managed large caps LICs in particular. Somewhat complicated by the logical one to sell for premium to NTA purposes not being the one to sell CGT wise. In the end I kept the lot, the ‘excuse ‘ being that, (a) I suspect Wilson large cap and small cap funds may not correlate that highly, and (b) I was underweight large caps at the time. That or I just got sick of staring at the numbers.

    As far as GW’s advice not to buy at the current premium, I couldn’t agree more. Indeed I would be selling WAM and/or WAX if not for the CGT position (average entry prices of 109c and 76c respectively).

    With regard to presentations, I have been to those of a few different managers over the years, but invariably came away wondering why I bothered. Also, these days you can often find the presentation somewhere on the ‘net. Nevertheless, I will be interested in your view on the Wilson ones.

    1. Yes there must be plenty of WAM / WAX holders not selling due to CGT being a factor. I can appreciate that and I doubt those investors will head for the exits all of a sudden. I can see your tax dilemma there and if it was me I could easily end up still holding like yourself, hard to say. Kind of a good problem to have, it at least means you have done quite well and probably bought at a discount I assume. Some newer investors probably don’t even know they once traded at a discount. A discount persisted for WAM from 2004 to 2013 I think.

      Newer investors that have jumped on board when the premium has been 25% are the ones that may be different and have “weak hands”. I think the future profit reserves and franking that WAM is sitting on is a fair bit lower than WAX. So perhaps that may be the key factor to watch.

      Totally agree with you about the presentations. Thought I would give these a run anyway though and get out of the house for a bit! One exception I have found is Sandon Capital if you are following their holdings because it is a small audience there (less than 10 when I’ve turned up). I haven’t been to GVF before so figure I’ll try that as it could have a small turn up since it is on at the same time as the Future Generation fund investor conference.

    1. Yes I am surprised that it has been announced this soon, and also that it doesn’t appear to offer much value for CYA shareholders for the tax assets that existed.

      I am not sure I will follow events from here too closely though. I sold the CYA shares I had at 94.5 already. Had been holding since Feb this year and the discount to NTA probably contracted about 5% in that time. That was about my overall return whilst the market was down slightly in the same time. Hopefully for the CYA holders remaining the WLE price holds up or even somehow the deal could be sweetened.

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