After putting itself up for sale a few months ago, Aecon Group Inc. (TSX:ARE) finally found a buyer. Chinese construction giant CCC International (or CCCI for the rest of this post) agreed to pay $1.5 billion for the company, or $20.37 per share. The deal is expected to close by the end of the 1st quarter, 2018.
Aecon shares currently trade hands at $19.56 each, translating into a potential profit of $0.79 per share in approximately five months. A gross profit of 4.03% works out to 9.7% annualized, assuming the deal takes the full five months to close. An early closing could easily push the total return into the 10% range, and the company does owe at least one more dividend payment to investors.
Let’s take a closer look at this merger arbitrage situation and see if it’s a good place to park some cash.
This is as straightforward as they come. CCCI agreed to pay the full purchase price in cash money, baby. I like to think they’ll actually deliver the money in a series of unmarked briefcases like a bunch of drug dealers.
Buyer’s willingness to pay
Experienced merger arbitrageurs (spelled that one right on the first try, what’s your superpower?) know that Chinese buyers have a terrible reputation for actually completing these kinds of deals. They’re as reliable as your slacker kid brother, essentially.
The good news is CCCI bucks that trend. The company acquired 100% of Houston-based F&G Construction in 2010 and followed that up by buying John Holland in Australia in 2015. Both of these deals closed without incident.
What a great word. Scuttlebutt.
The big risk to this deal is the small chance the Canadian government squashes it. There are several reasons why this is unlikely to happen.
When he isn’t appearing at gay pride parades, Prime Minister Justin Trudeau has indicated his government will be more friendly to foreign takeovers than his predecessors’. Trudeau also has much stronger links to China than Stephen Harper, which is also a positive for this deal.
Both Aecon and CCCI have taken steps to ensure the deal goes through as planned. The company’s head office will continue to be in Canada and the current management team will stay in charge. There’s also a decent-sized break fee of $75 million if CCCI pulls out of the deal.
Most government observers say the deal will close without incident, and I agree with them. This looks like a fairly low-risk merger arb situation.
Disclosure: No position today, but shit can change yo.