Yongye: Bizarre trading

A week ago, Yongye announced that shareholders approved the going private transaction (8-K filing).  This would suggest that the merger has a higher chance of happening than before the vote.  There is one less possible scenario as to why the going private transaction might fail for a second time.

Strangely enough, the stock is trading down a week later.  I have no idea why this is.  Shareholders may soon be paid $7.10 and the stock was previously trading at $7.08/$7.09.  Perhaps Mr. Market’s mood swings are taking effect or some weaker merger arb players are panicking.  In any case, I am closing a portion of my short position in Yongye.  The $7 Jan 2016 puts previously trading at a bid/ask spread of $0.00/$0.05.  The current spread is $0.30/$0.40.  If you had a time travel machine, you could have made several times your money on these puts (before commissions and rebates).  (*EDIT:  When I talk about time travel, I’m being a little facetious.)

One somewhat similar situation is Fushi Copperweld, covered here on the Bronte Capital blog.  Shortly before the going private transaction closed, somebody panicked and the common shares traded down.  The transaction ultimately closed and the shorts lost money.

yongye-june-13-bizarre-trading

*Disclosure:  I own Yongye puts.  No position in the common.

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