Strategic trade
Trade view / 24 November 2015 at 8:08 GMT

#SaxoStrats: Ways to trade Allergan after Pfizer's bid

Head of Equity Strategy / Saxo Bank
Instrument: AGN:xnys
Price target:
Market price:

Pfizer is to acquire Allergan in all stock deal with Allergan shareholders getting 11.3 shares in Pfizer for every Allergan share. The deal is actually a reverse deal with Pfizer moving tax status to Ireland.

Management and risk description

Going long in Allergan only is the simple way to trade this deal, but also the one with the most risk as a long position in Allergan goes down in tandem with Pfizer. The current deal premium is 16.7%.
A hedged trade, on the other hand, is less risky and captures a guaranteed spread minus financing. It does so by shorting 11.3 shares of Pfizer for every one share long in Allergan. The hedged spread is 7.7% .

Long only version: Buy AGN:xnys at market with trailing stop price $235 and steps of $7.
Key risks: the deal breaks down, Pfizer share price goes down .


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— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more


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