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  • Writer's pictureIshfaaq Peerally

I LOST MONEY on an Arbitrage Trade

I lost money on the Tiffany & Co. $TIF - LVMH $MC.PA deal. It is not much, only about 0.35% of my portfolio but still I believe it is important to talk about it since this is the first arbitrage trade where I'm losing money. How do you know that you're in a good deal or not?

Tiffany & Co. was going to be acquired by LVMH in an all cash transaction for $16 billion or $135/share.

There were rumors in June that the deal may not go through because of the unrest in the US and the stock price of Tiffany & Co. fell. I took the opportunity to invest since it looked unlikely that LVMH CEO and founder, Bernard Arnault, would move away from a deal because of short term noises. It was a good decision at the time since the stock recovered.

The deal is now not happening because the French government is not giving approval because of US tariffs on French luxury goods. That's why LVMH gave up on the deal. However, Tiffany's is suing LVMH.

I took the decision to sell everything, accept the small loss and move on. Tiffany & Co. is expensive and I wouldn't hold it without the deal. Moreover, the lawsuit is beyond my circle of competence.

I am not, however, going to give up on arbitrage. With stocks being expensive, arbitrage is still something very interesting. I doubled my money on the Caesars Entertainment - Eldorado Resorts deal earlier this year. I made quite some good deals before, Allergan, Red Hat, Celgene, Anadarko Petroleum.

I currently have two arbitrage deals in my portfolio, Fitbit $FIT to be acquired by Google $GOOG and Genworth $GNW to be acquired by China Oceanwide.

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