M&A Arb: Dick's Sporting Goods (DKS) Acquires Foot Locker (FL)
The asymmetric opportunity after the DKS sell-off last week
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Deal Overview
On Thursday, DICK’s Sporting Goods (DKS) announced that they were going to acquire Foot Locker (FL) for $24/share (~$2.4 billion), +86% premium.
As part of the deal, DKS gave FL shareholders the option of taking the $24/share in cash or electing to take 0.1168 shares of DKS common stock in exchange.
DKS investors, apparently, did not like this deal, and the company sold off ~15% from the previous day’s close, about $2.4 billion in market cap (basically the entire value of the deal).
While the deal is confusing as to why DKS decided to acquire FL, investors were quick to dismiss not just the arb trade at hand but also the new company going forward.
Given the aggressive sell-off in DKS post-announcement, we think that this arb trade leads to a very asymmetric opportunity at these levels for those looking to get involved.
*Disclaimer: We’ve taken a position in this trade and highlight not only a) why we structured our trade this way, but also b) why this asymmetric opportunity exists.
With that, let’s begin…
***If you’re new to our research, you can take a look at our recent Arb trade with Soho House (SHCO) here, for free.