{"id":60385,"date":"2023-09-13T08:18:15","date_gmt":"2023-09-13T12:18:15","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/albertsons-arbitrage-on-kroger-buyout-gets-better-with-asset-divestiture-nyseaci\/"},"modified":"2023-09-13T08:18:20","modified_gmt":"2023-09-13T12:18:20","slug":"albertsons-arbitrage-on-kroger-buyout-gets-better-with-asset-divestiture-nyseaci","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=60385","title":{"rendered":"Albertsons Arbitrage On Kroger Buyout Gets Better With Asset Divestiture (NYSE:ACI)"},"content":{"rendered":"
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The updated buy thesis<\/strong><\/h2>\n

Back in August, we wrote about Albertsons (NYSE:ACI<\/span>) as a merger arbitrage play with respect to the pending buyout from Kroger (NYSE:KR<\/span>). Since then, the arbitrage gap has narrowed to about 15% due to ACI appreciation, but the play might be better anyway due to the increased chance of closure.<\/p>\n

On September 8th, Kroger and ACI put out a joint press release detailing a planned sale of 413 stores to C&S Wholesale for $1.9 billion. This article will analyze how the new events change the merger calculus and detail why we think it is a strong opportunity.<\/p>\n

The arbitrage play<\/strong><\/p>\n

As of the close of trading on 9\/11\/23, ACI is trading at $23.63. Per the terms of the merger, KR is slated to pay $27.25 per share of ACI ($34.10 minus the $6.85 dividend that was already paid).<\/p>\n

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Portfolio Income Solutions Arbitrage Tracker Spreadsheet<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

That presents 15% upside upon merger completion to those who buy ACI at today’s price. Given that the expected close is in Q1’24 it is a fairly short wait for that sort of gain.<\/p>\n

Previously a portion of the $27.25 consideration was going to be a SpinCo which made the buyout price a bit fuzzy, but it is now $27.25 in all cash. With the planned dispositions to C&S Wholesale, there is no longer a need for a SpinCo, and KR has publicly stated it is no longer pursuing a SpinCo.<\/p>\n

This makes it a clean 15% all-cash upside to the arbitrage play.<\/p>\n

So what is the downside?<\/p>\n

When we discussed this idea back in August, we saw minimal downside because ACI was trading about in-line with where it was prior to the merger announcement. Today, ACI is trading higher, so there is about 10% downside to where I suspect ACI would trade if the merger fails.<\/p>\n

As investors demand some sort of return for waiting the roughly 4-6 months for an expected close, current pricing suggests a completion chance of about 50%.<\/p>\n

I think the chance of completion is substantially higher than that.<\/p>\n

Barriers to merger have been largely eliminated<\/strong><\/h2>\n

As consumer facing companies selling necessity products like basic food items, there are many interested parties.<\/p>\n