Q: Hi 5i Research team,
Walgreen’s announced a 100% cash take-over Rite Aid at 9$. The competition Bureau will review the transaction (I am relatively optimistic based on the recent Staples/Office Depot merger; the larger size of CVS; and competition from everywhere else in the US market). The closing is forecasted in the second half of 2016. I am wondering what to do (hold / sell on strength? / sell on strength in 2016).
This investment is outside my RRSP/TFSA: meaning large taxable gain (with only a small capital loss earlier this year to net against). The Federal Liberal may change taxation on capital gains before the closing of the transaction. I am using margin in this account: I pay about 2.75% of interest on the full amount backing RAD shares. RAD.US is currently trading around 8$ early Wednesday morning: therefore there is still about 11% of return to be made by waiting. There is an “opportunity cost” to wait, that could also be an “opportunity profit” of not reinvesting before the Fed make its first interest hike and shake the financial markets. The exchange rate could/will change (difficult to forecast, but my anticipations are: US appreciate versus CAD following a US rate hike in early 2016 => so no hurry here). US funds from this transaction will be immediately converted into CAD cash in my account.
Two US lawyers firm lunched a recourse against the board for accepting an offer that is too low, therefore not in the best interest of the shareholders (is there potential upside here?). Is it possible that Walgreen’s rise its offer without a competing bid? Can you reasonably expect a competing bid? If yes, could you named some potential alternative buyers (Walgreen’s has long been the main potential suspect). And finally, there is always the risk of the transaction not closing.
Am I forgetting something? Based on this picture, what do you recommend? Thank you for your advice, Eric
Walgreen’s announced a 100% cash take-over Rite Aid at 9$. The competition Bureau will review the transaction (I am relatively optimistic based on the recent Staples/Office Depot merger; the larger size of CVS; and competition from everywhere else in the US market). The closing is forecasted in the second half of 2016. I am wondering what to do (hold / sell on strength? / sell on strength in 2016).
This investment is outside my RRSP/TFSA: meaning large taxable gain (with only a small capital loss earlier this year to net against). The Federal Liberal may change taxation on capital gains before the closing of the transaction. I am using margin in this account: I pay about 2.75% of interest on the full amount backing RAD shares. RAD.US is currently trading around 8$ early Wednesday morning: therefore there is still about 11% of return to be made by waiting. There is an “opportunity cost” to wait, that could also be an “opportunity profit” of not reinvesting before the Fed make its first interest hike and shake the financial markets. The exchange rate could/will change (difficult to forecast, but my anticipations are: US appreciate versus CAD following a US rate hike in early 2016 => so no hurry here). US funds from this transaction will be immediately converted into CAD cash in my account.
Two US lawyers firm lunched a recourse against the board for accepting an offer that is too low, therefore not in the best interest of the shareholders (is there potential upside here?). Is it possible that Walgreen’s rise its offer without a competing bid? Can you reasonably expect a competing bid? If yes, could you named some potential alternative buyers (Walgreen’s has long been the main potential suspect). And finally, there is always the risk of the transaction not closing.
Am I forgetting something? Based on this picture, what do you recommend? Thank you for your advice, Eric
