Arbitrage opportunity between Mahindra Satyam and Tech Mahindra

Mahindra Satyam finally merges with Tech Mahindra throwing up attractive arbitrage opportunity.

 

As per the Merger Ratio, you get 1 share of Tech Mahindra for every 8.5 shares of Mahindra Satyam.

Tech Mahindra CMP       - Rs. 1000

Mahindra Satyam CMP  - Rs. 114.75

Costing of Tech Mahindra Shares through Satyam Conversion(8.5*114.75) – Rs. 975.35

Mahindra Satyam shares will cease to exist w.e.f. 4^th July.

  

Option 1 : For the Investors holding shares of Tech Mahindra

Sell Tech Mahindra @ CMP of Rs. 1000

Buy 8.5 shares of Mahindra Satyam @ cmp of 114.75 for every 1 share sold.

This gives a gross return of 2.46%

 

Option 2 : Individual wanting to undertake arbitrage

Buy Satyam 2125 shares of Satyam @ cmp of Rs. 114.75

(2125 shares of Satyam = 250 shares of Tech Mahindra)

Sell Tech Mahindra July Futures @ cmp of Rs. 990.

On the expiry day(25^th July) Sell Tech Mahindra Shares (You are likely to get the shares before 20^th of July) and square the futures contract.

Gross Return is 26% and net return is 18%

 

Option 3 : Individuals with some degree of risk appetite to Buy Satyam and sell At the money call of Tech Mahindra

Buy 2125 shares of Satyam. Sell 1000 call of Tech Mahindra(July Series) @ cmp of 37.

The loss will start from Rs. 938.75. On the upside the gains get capped @ Rs. 1037 giving a gross return of 6.3%(20 days)

 

Note :

1.     Tech Mahindra had 1 month low of Rs. 909 and high of Rs. 1098

2.     I have a positive view on Tech Mahindra. (Combined entity of MS and TM bring size ($2.9 bn) and become 6th largest IT service provider. a) strong presence in emerging areas, b) technical expertise (Telecom & Manufacturing) and c) cross-selling opportunities among both entities.  Recent correction makes it attractive.)

WHAT EVER YOU EARN FROM MY CALLS PLEASE GIVE 10% PROFIT'S FOOD TO COWS AND DOGS HELP THM GOD WILL HELP YOU-!!!