Is there some kind of arbitrage in tree house and zee learn merger?
pre merger the no. of share for zee learn is 32.06 and for tree house is 4.23 mcap @ cmp of 31 & 75 is 994 & 318 respectively.(all figures are in crores)
So total mcap of the merged entity would be 1311 cr. No. of equity of the merged entity would be 54.48 cr. and hence the share price would be 24.
so if i hold say 10 shares of tree house @ 75 i will get 53 shares of new entity i.e @ 24. and hence i can get a profit of 522 for 750 investment, i.e. 41%.
even if the prices of the merged entity falls to 18 still i will make a return of 21 % on my investment. Please correct me if I am wrong.
Theoretically arbitrage opportunity exists if we are sure the merger goes through and THEAL books are good. But we got to remember that Zee stock is essentially getting diluted and if the THEAL books arenāt good or some write-off happens stock will fall further. Currently the issue seems what is true valuation of THEAL. With so much in bad news out and owners pledging 100% shares, no one knows what is in there?
As mentioned in my earlier post, the best way to take advantage of arbitrage here is to do pair trading.
For every 1 stock of tree house buy, short 5 shares of Zee learn. If the merger goes through, then you can always cover the 5 stocks of Zee Learn you receive from Tree house. Essentially, you are covered here because, any upside in Tree house will be benefited. Any downside of Zee Learn after the merge is shorted already.
But these stocks arenāt available in derivative market, shorting of Zee Learn not possible! Or someone can correct.
Interesting to see that the Modified C Score rating for Tree house is relatively benign at 2 yet there seems to be creative accounting at play going by the actions of the promoter.
Is there any timeline to the merger process and does anyone know what steps are required. My guess is EGM + court, in which case when is the EGM. The opaqueness of all this is crazy!
Hey @Prash unfortunately I am still tracking this. Tree House has made a loss this quarter.
QoQ, income from operations has reduced by 54% and same has stayed stagnant YoY.
EPS has decreased by 90% YoY from 15.66/share in March,15 to a current 1.60/share.
Something mentioned under āOther Expensesā has increased 3 times YoY from 1783 lakhs last year to 5072 lakhs this year. Not sure what these expenses are.
Oh, in case you want more bad news, no dividend this year and Zee Learn might consider revising the swap ratio considering the dismal results.
Please be very thoughtful about investing in THEAL. TO my mind there are two scenarios that is possible:
Change in Swap Ratio: in this case, I dont think there would be any arbitrage opportunity available after considering the last quarter result. So there is nothing much to gain for THEAL shareholders.
Cancellation of merger deal: Nothing can go worst than this. Is this happens, then THEAL is most likely to see lower levels given a) horrendous results for fy16 b) CORPORATE GOVERNANCE ISSUE.
If you analyse 4Q income statement and B/S closely: Other expenses has shot up 7.5crs to ~62crs. This might be because of increase in provision for bad debt. However, if we check the B/S, debtors are still at elevated levels. To my understanding this is still a book entry (no cash involved), then why cash has gone down from 161crs to 22crs.
Even if you want to play this theme, I believe its better to bet on Zee Learn now than on THEAL
Please do your own due diligence on both the companies before investing. Not invested in either of the companies.
But how could the company is still not transparent and not openly coming out to provide the details for this fiasco. Isnāt this a case for SEBI to take action?
Unfortunately I am waiting for merger to sold my shares and I am in huge lossā¦ why SEBI take action on companies like these?..do we have a way to report on THEL?
Tree house is a case of overstating revenue - parking some of it in debtors and the remaining is shown as capex which is at very high level. There was a warning signal when Deloitte resigned as auditor 1-2 year back.
Question is how come no action being taken against these folks. Investors are exiting with losses and insiders are just resigning. No whistleblowers or class action suites against the shoddy promotersā¦
Bottom-fishing at what levels though? BV is 153, stock at 60, mcap approx 250Cr.
100Cr of debt (incl short and long term) and 22Cr in cash. Of course cash will rapidly evaporate, but fixed assets close to 447Cr. Enough margin of safety?
Disc: Long at around 88 levels. Sitting on losses, will wait till merger situation is clear at least.
Yes, this company cannot be trusted anymore. Forget about margin of safety, it doesnāt even guarantee its own assets. Book value is bogus for such companies.
@theashworld Tree House has cooked its books any rational analysis performed on its fundamentals are in vain. Building positions now is highly speculative.The Morgon Stanley exit and Zee reevaluating merger ratio indicates the extent of corruption used by Bhatia in Tree House numbers.
@Prash SEBI can be informed by shareholders of such activities. I believe emails/letters from minority shareholders might get some attention. Senior members might be able to guide on this subject.
Zee Learn Ltd has informed BSE that as a part of the evaluation of the financial results of THEAL for the quarter ended on March 31, 2016 and for the financial year ended on March 31, 2016, the Board of Directors at its meeting held on June 01, 2016, have decided to keep on hold the Scheme of Amalgamation of THEAL with the Company.
Further to the above, the Board of Directors has decided the following:
Zee Learn Ltd will not be going ahead with the currently agreed share exchange ratio of 53 fully paid equity shares of INR 1 each of Zee Learn Limited for 10 fully paid equity shares of INR 10 each of Tree House.
Re-constitution of the Merger Evaluation Committee (MEC) with the authority to look into and suggest ways to salvage the deal with THEAL which will best keep the interest of Zee Learn Ltdās stakeholders intact.
The MEC to appropriately inform THEAL of the above decisions.
SEBIās site does say, one should first approach the concerned company and then approach them (given that the response from company will not be satisfactory at all).
Rather than watching all these events unfold, it would be worth a try for some of the Tree house retail investors in this forum to reach out to SEBI, but we need to make sure we first prepare the right details which need to go in the complaint. Would request the seniors of this forum to guide here.
Also would appreciate responses from folks who have used SCORES on how to proceed with Tree house scenario (given all the events that happened in the last 6-8 months).
