US Steel (X)
I’ll keep this short, I’ve sold my UL 0.00%↑ and SOLV 0.00%↑ positions and bought X 0.00%↑ in order to try and participate in this event based opportunity.
Thesis
I think the company will likely be acquired by Nippon Steel because there is no significant issues regarding:
Anti-Trust
Geopolitical Threats
The main barriers are labor relations related and political:
The Union prefers the Cleveland Cliffs CLF 0.00%↑ offer
The president has opposed the acquisition in support of the Union
I think that neither of those issues are insurmountable, and that the president will back down his opposition as long as this merger doesn’t become a political lightning rod.
Nippon Steel looks to be willing to negotiate with the union.
The upside is relatively high (around 40% given my cost basis) and the potential downside relatively low.
The Cleveland Cliffs offer provides another possible avenue which reduces the potential downside.
When assigning a 50% chance that the Nippon Steel offer goes through, and a 25% chance that it does not go through but Cleveland Cliffs goes through the offer, and a 25% that it does not go through and CLF 0.00%↑ does not make another offer, I get an Expected Value of $43.13 per share.
Win condition
The merger is approved and goes through before the end of the year
Loss Condition
The merger is not approved and Nippon Steel gives up on it
April 2025 comes around and the merger has still not occurred
I bought 50 shares at $39.09 per share for this, so expect to make about $800 if it goes through, or lose about $50 if the CLF 0.00%↑ offer does instead. If neither go through I’ll probably lose around $700.
Not a great return, but I’m interested in seeing how this goes for future similar merger arbitrage plays.