Can any of you brainy arbs tell me why EDR is trading above Silver Lake's bid? Seems like there's somewhat of a NAV discount with TKO and maybe people think Silver Lake may bump of the bid? But Ari is buddy buddy with the PE folks so that seems unlikely? Idk I'm just an event tourist...
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Based on the most helpful WSO content, when a stock like EDR trades above a private equity acquisition bid, it often signals that the market anticipates a higher bid or improved terms. In this case, the speculation could stem from:
However, as you mentioned, Ari's close ties with Silver Lake might reduce the chances of a bid increase. It could also be event-driven traders speculating on the possibility of a competing bid or other strategic moves.
Sources: Evercore paying up to $25,000 to delay start date, Tides Equities?, Estee Lauder / Tom Ford Deal Rationale, Eight Habits of Top Bucket IBD Summers, Grading The Economy | The Daily Peel | 4/26/22
The tape is showing EDR trading through Silver Lake's $27.50 bid, which is catching the attention of event-driven desks. The primary thesis centers around two main factors in the setup: On the stub, you've got the TKO stake (51% ownership) that's arguably not being properly marked by the street and the NAV arb here is interesting - TKO's been trading at a discount, but any mean reversion could provide natural upside to the deal value. Some desks are likely running a positive delta book here, getting long EDR against their standard risk arb position to capture this optionality. Looking at the deal dynamics, while this is a friendly PE takeout with Silver Lake already having significant ownership, the initial premium feels light versus comparable deals - buyside isn't fully convinced this is best and final, hence the spread trading inside (negative). Silver Lake has dry powder and could justify a bump while still hitting their return hurdles, especially given their cost basis on the existing position is low. The pushback, as you noted, is the relationship between Ari and Silver Lake. This isn't your typical MBO situation where you can play hardball on price. The risk/reward here feels more asymmetric than standard done-deal PE trades - limited downside if it breaks given the quality of the asset, but potential upside from either TKO appreciation or a bump. Positioning-wise, most dedicated arb books are probably running this neutral to small given the tight spread, but event-driven generalists seem to be taking a punt on the upside cases. The borrow is relatively clean, so you're not seeing much technical pressure from the short side
thank you mr. arb! 2 questions:
1. what do you mean by "positive delta book here, getting long EDR against their standard risk arb position"? what are you shorting on the otherside of long EDR to make it a risk arby position? and by "positive delta" do you mean net long the deal? i'm not engrossed in the lingo, apologies
2. you said the borrow is clean, SO there isn't much technical pressure from the short side. you're just saying that clean borrow is indicative of not much short selling right? i wouldve thought that clean borrow makes shorting cheaper which is more attractive which should warrant short pressure?
Hey man, thanks for the questions! I don't work in arb haha - just did an internship when I was in college at an arb fund!
On 1, a standard risk arbitrage position in a cash deal would be to simply go long the target stock (EDR) against the cash offer price ($27.50). However, what's being described here is traders taking an EXTRA long position in EDR beyond their normal arbitrage position - hence "positive delta" meaning they have more upside exposure than a standard risk arb trade would have. They're not necessarily shorting anything against it - they're intentionally taking on more exposure to EDR's stock price movements to capture potential upside from either a TKO stake revaluation or a potential bid bump
On 2, you're right but look at it slightly differently. A "clean borrow" means it's relatively easy and inexpensive to borrow EDR shares for shorting - so whilst, you're correct that cheaper borrowing costs could theoretically make shorting more attractive, in this context it's being used to indicate there isn't heavy short interest (which would typically make the borrow more difficult/expensive). The easy borrow suggests most traders aren't actively betting against the deal by shorting EDR stock, likely because they see limited downside risk given the quality of the company and SL's existing stake.
Understood on 2, thank you!
On 1, how do you run this delta neutral if it's a cash deal? Maybe I'm misunderstanding the "delta" here as the stock has a delta of 1; I don't really have delta on the position level changes buying more stock (ie delta 1 -> delta 1). Or are you referring to relative sizing versus peers like a merger arb benchmark?
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