Bank of New York Mellon which handles the ADR shares of Trina Solar appears to be finalizing the all-cash TSL self-buyout of the U.S. based shares. I am up 18% in the 3 months I have owned it compared to a 5% gain for the S&P 500.
This investment worked in part because the valuation was so cheap that I was never sweating getting stuck with the TSL shares if the deal fell-through. The price was well-supported by a valuation floor, which poses a sharp contrast to my Rite Aide debacle. Trina Solar ADR shares were trading at single digit valuation multiples as recently as a month ago. I felt confident that Chinese regulators were not going to block the Chinese founder of his company from buying back his own US-based ADR shares. So when the stock was selling off due to vague macro fears of a Chinese capital outflow clampdown, I bought. Disgusted and exhausted U.S.-based investors had discounted the likelihood of the deal closing.
It is interesting to see Berkshire Hathaway now doing the same style investment in Monsanto, a stock founded on low valuation but which includes 12.1% of upside M&A optionality if the deal closes. To me this lends credence to my initial thoughts about M&A investment back in the fall. Many of the regular risk-arb M&A firms chose to sit on the sidelines rather than take on some of the riskier M&A deals available without considering the cheap-to-fair valuations of the pursued companies.
My portfolio is getting more manageable at 25 stocks. For anyone interested in M&A arbitrage spread ideas, two great resources here: