I think one of the main reasons the TRY has been so strong recently is that it is being added to the GDXJ ETF in the US. Now the GDXJ ETF has about US1.5bn in AUM, and TRY is going to form 0.73% of the index. In other words, this has created over US$10m of buying pressure in TRY, which needs to be done by close of business on Friday - That's around 5,500,000 shares in TRY.
Well lucky me you might say! However, due to the AZH takeover, this creates an opportunity for you to own even more shares in lovely, lovely TRY. This is how it works:
As you know, TRY have offered 1 new share in TRY for every 5.695 AZH shares. According to this morning's announcement, TRY now have ~64% acceptances for the offer.
Now with TRY trading at 2.19, that should translate to an AZH price of 38.5c - but it's trading at 32.5c. So assuming the deal goes through, if you swapped your TRY holding for an equivalent $ position in AZH, when the deal completes you'll end up with 18% more shares in TRY than you held before.
Example: So if you sold 10000 TRY @ 2.19, you'd have $21,900. If you then bought $21,900 of AZH at 32.5c, you'd have 67,385 AZH shares. After the takeover, you'll receive 11,832 TRY shares.
In my view, this pressure from GDXJ is what has caused TRY's outperformance, and this will be over in Friday's close (cos that's when TRY enters the index). As you can see from the attached chart, the spread between AZH and TRY has blown out massively recently.
Disclosure: Why am I telling you and not doing this myself? Well I have been! I'm long AZH/Short TRY - but the TRY borrow has run out, so I can't put any more on. So you need to be long TRY to put this trade on unfortunately. I've got no view on the worth or otherwise of TRY and AZH, I'm just interested in the spread between them.
Of course, do you own research, and this doesn't constitute advice. If the deal falls over (highly unlikely in my view as TRY already have 64% plus a convertible over >7% of AZH) then you end up with AZH instead. But at 18% due to forced buying of TRY you are well compensated for risk and in my view, it's a gaping open goal for TRY holders
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AZH Price at posting:
32.7¢ Sentiment: None Disclosure: Held
