Nah, Nah, Nah, Nah…Hey, Hey…Goodbye!

It’s in the books. Shareholders of Anheuser-Busch (BUD, $66.33, down $0.51) approved the $52 billion sale of its beer business to Belgium-based InBev today. The two companies will create the world’s largest brewer.

The was the last step needed step to form the company that will be now be known as Anheuser-Busch InBev. Yeah, its sucks to loose an American icon but the shareholders got a great deal. Not to mention the beer list the company touts. Bud/ Bud Light, Stella Artois and Beck’s. Gee, I wonder if they will create a variety pack.

I’ve been mentioning this deal for months and we actually went long on some Anheuser-Busch option calls when the rumor was floating around. I also mentioned in late October when the stock was in the upper $50’s that you should consider a stock trade because the deal was expected to close by the end of the year. Although the merger is subject to regulatory approval in the U.S., Britain and China, the buyout offer is $70 a share.

The gains from making that trade were about 20% but the key was that it was a safe trade in a volatile market. As option traders, yeah, we like to trade options but there are times where you have a situation like this one and you have to buy the stock instead of trading options. True, it would have tied up a lot more capital - buying 100 shares would have cost $5,700 - but the return was pretty much guaranteed with the buyout priced at $70. When the stock was at $57 you should have realized that there was still $13 to go which gives you a 23% return.

The stock may have been down today but eventually it will get to $69-$70 a share. Even at today’s closing price there is still 8% to go. It’s what is know as arbitrage on Wall Street, a risk-free profit. Although I always prefer options over stocks this is one time where the stock was a better bet.

Rick Rouse
Rick@OptionsMentoring.com

Anheuser-Busch (BUD, $66.69, down $0.46) has been trading 5%-10% below its takeover price of $70 a share and I wanted to point out what this means. In late June and early July, this was a hot topic for the blog and many of you did well with some of the option trades I profiled.

Having said that, although there are no option trades that I would recommend right now, BUD is perhaps one of the best risk arbitrage plays out there in the market. InBev has agreed to purchase the shares of Anheuser-Busch for $70 per share and typically, until an acquisition is completed, the stock of the target typically trades below the purchase price.

An arbitrageur (love that word) is someone who buys the stock of the targeted company and makes a gain if the acquirer ultimately buys the stock.

Brazilian antitrust regulators have already approved without restrictions the sale of Anheuser-Busch to InBev so there’s a really good chance that the $70 a share will happen. The stock traded as low as $63.50 last Wednesday and Thursday and if we can get back to those levels, I think you should pull the trigger on a stock trade.

Rick Rouse
Rick@OptionsMentoring.com