Complications and Potential Issues
It should be noted that this transaction is not yet a done deal. Although the Nevada Gaming Commission’s approval was certainly the most important hurdle, the merger is still under Federal Trade Commission review. Additionally, gaming commissioners in Iowa, Indiana, Louisiana and Mississippi will need to give the deal their blessing. Rejections from any of these state entities could force the companies to sell off properties in the affected areas before consummating the deal. However, this currently seems unlikely.
Ways to Profit
It is unfortunate that this deal currently offers little in the way of an arbitrage profit. However, keen-eyed investors can still make it worth their while. Those who believe that regulatory approval is not assured may wish to remain on the sidelines until a news-related event drives down Ameristar’s price. Those who wish to be particularly aggressive could even open a short position in Ameristar on the expectation that the deal will fail. However, this may present too much risk for any but the most cavalier traders.
Alternatively, a long position in Pinnacle may prove to be judicious over the long term. Since news of the deal broke, the company’s stock has been on an unprecedented tear. After a period of consolidation, it could well resume its upward climb. In addition, the predicted synergies that this deal will create could produce long-term value in the combined company’s stock.
In sum, this deal provides opportunities for short-term traders and long-term investors alike. Despite its lack of an arbitrage trade, it promises to create synergies that could improve the combined company’s balance sheet and create long-term value. However, investors should remember that the merger still requires action from several regulatory bodies. In this heavily regulated industry, merger-related celebrations often turn out to be premature.
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The article Merger Offers Synergies and Profit Potential originally appeared on Fool.com and is written by Mike Thiessen.
Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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