This evening I’m celebrating my homerun merger arbitrage hit with an ice cold Bud. My shares of Anheuser-Busch Companies (BUD) were cashed out this morning. I was expecting that I would be cashed out of this position rather soon ever since I saw last week that the Department of Justice cleared the merger with InBev (INBVF).
This morning the Special Situations Real Money Portfolio account showed $7,000 in cash had arrived for the hundred shares of BUD that I had acquired back on October 6, 2008. I originally purchased these 100 shares for a total cost of $6,309.95. Therefore, my total profit on this trade comes out to $690.05, a 10.9% total return. If I annualize that return for the 45 days I was invested in BUD, the average annualized rate of return is an amazing 89%!
BUD was a great win for the Special Situations Port. Now I just need to temper my enthusiasm for merger arbitrage opportunities, since this unusually generous return for a large cap merger arbitrage play is not the norm. I believe this opportunity was only available as a result of the deleveraging of hedge funds and institutional investors during this market crisis. It goes to show you how important it is to adapt and remain flexible given the rapidly changing market environment. These opportunities in the often dull field of special situations are often only truly profitable when the markets get out of equilibrium and become irrational.
The closing of this Anheuser-Busch position frees up a lot of cash for new opportunities in the Special Situations Real Money Portfolio. I already put a portion of the cash to work in a classic going private transaction that I revealed to subscribers of Fat Pitch Financials Contributor’s Corner.
The Special Situations Real Money Portfolio ended the day with a balance of $18,763.44. I’m proud to say that this portfolio is up 17.64% for the year and currently sports a 25% IRR since inception. There are not too many other portfolios out there outperforming the indexes by this amount. My goal now is to try and maintain this level of performance by continuing to focus this portfolio on relatively low risk workouts.
Disclosure: I do not currently own shares of Anheuser-Busch (BUD) or InBev.