Merger Arb With Mispriced Risk

Everything suggests a straightforward closing in Q1 2026.

The company is being acquired by its close peer and the spread is 18%. Major stockholders, who collectively own 37%, have agreed to support the deal, so shareholder approval is essentially locked in. Antitrust risk appears low as the industry is fragmented and the combined company will not be large. The offer will be funded with the buyer’s cash on hand and available credit facilities. On a quick read, everything suggests a straightforward closing in Q1 2026.

The spread seems to exist because the market might be misperceiving the risks tied to the tight borrow in the buyer’s stock, which forms part of the consideration. If my thinking on this is correct, the actual risk is minimal and the downside seems well protected.

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