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
