Duke agreed in concept to merge/buy PGN today. I don't often get involved with the "arb game" with "the big boys" around M&A but in this case I think it is worth a speculative play. This utility merger will likely move slowly, be less volatile, and has less of a premium than many other M&A situations. Those characteristics should minimize the hedge fund activities in this situation. Hopefully this provides some floor under the stock for a short period of time which will provide the opportunity to make a quick, low risk 2% gain.
At the time of the merger each share of PGN would be worth 2.6125 worth of Duke. So in theory if Duke trades at $17.50 (what it fell to today) PGN should be worth $45.71, if Duke falls to its 200dma of $17.15 PGN should be worth $44.80. In addition it is probably safe to assume that PGN will continue to pay its .62 per share per quarter dividend during the merger approval process cycle. Assuming this takes three dividend periods to close that would be $1.86 in dividends. Add that to a conservative price of $44.80 and a you get an end of year value of over $46.50 maybe $47.00.
I purchased PGN at $44 this morning. The trading plan would not be to wait until the end of the year to try to get the $46.5 in value out of the trade but rather get out in the short-term if/when the stock drifts toward $45 for a 1-2% gain. Since this deal was just announced it would be surprising to see something become wrong with this deal in the short term time frame of this speculative trade. If the stock sticks at around this level for a week or so, it would be time to re-evaluate and likely get out at break even. Worse case if something were to go wrong with this deal hopefully PGN could stabilize around the $42-$43 level where it was trading prior to this news.
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