1 Answers: Redhat (RHT) a great value play at ~ 20% ROI?
Please let me know your thoughts on this investment thesis:
Redhat (RHT) is trading at 173.5. The IBM acquisition price is 190. I am expecting the deal to be approved in around 6 months. That will be giving an ROI of 20% per year.
The puts are cheap (with less than 10% IV). So, I would hedge with puts that will cost less than 50 cents per share. If the deal does not go through for some reason and the price drops, the pay off from these puts will be huge.
The chances of the deal not closing are very slim for the following reasons:
1) 80% of Redhat shares are held by institutional investors. So, don’t see any concerns of shareholder approval unless another company offers a deal valued at more than 190.
2) IBM and Redhat are not dominant in any industry, so don’t see any regulatory concerns either.