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Background

On February 20, 2020, there was an acquisition announcement which Morgan Stanley (MS) will acquire ETRADE (ETFC). ETRADE stockholders will receive 1.0432 Morgan Stanley shares for each ETRADE share. The acquisition is expected to close in the fourth quarter of 2020. After the announcement, the acquisition premium before fee can be calculated as following :

Acquisition premium before fee= 1.0432* One share of Morgan Stanley – One Share of ETRADE.

How the Acquisition premium before fee change after the announcement

After the announcement , acquisition premium increased and reached the highest $3.51 on 16/3/2020 . Then it continues to diminish to around $0.5.

For the return of acquisition premium over ETRADE before Fee (The percentage of acquisition premium/ One share of ETRADE), it reached 12% on 16/3/2020 and diminish to 1.1%.

How and who should capturing the acquisition premium

For the long-term investor who are positive about the business of Morgan Stanley (MS), they may invest in ordinary share of ETRADE and hold for the completion of the acquisition. The whole investment can be improve by the acquisition premium.

Risk and Consideration

  1. The return of acquisition premium is subject to different fees or tax (Transaction fee, Handling fee) which affect the overall return.
  2. The acquisition is subject to customary closing conditions, including regulatory approvals and approval by E*TRADE shareholders. If the acquisition fail, the strategy may make a loss.
  3. This strategy is aim for holding ordinary share of ETRADE only. Financial derivative (such as CFD) may not be able to capture the acquisition premium.

Reference

https://about.etrade.com/newsroom/press-releases/article?qmodStoryID=4682042639390047

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