Buy: RFG Foods
RFG — which has commanding market positions in canned fruit, jams and fruit juices — is being acquired by larger consumer brands specialist Premier in a scrip deal. The proposed settlement means RFG shareholders will get one Premier share for every seven RFG shares. The offer carries a tasty premium of more than 50% to RFG’s undisturbed price. Even after a 40% rally since the announcement, there’s still room for upside.
Adjusting for dividends expected before the deal closes in March, investors could earn a return of about 7% from current levels. Annualised, that’s more than 20%, a solid outcome in a market that has already run hard this year. Premier exposure can also be hedged, effectively locking in this return if the deal proceeds as planned.
Of course, the main risks are delays from competition authorities and RFG’s material adverse change clause. Despite these, the deal’s uncorrelated nature makes it our top pick this week.
Sell: Teck Resources
Looking at another buyout, Anglo American’s nil-premium merger with Teck offers far less compelling arbitrage prospects. The unannualised spread sits at a similar 7% level once Anglo’s $4.5bn special dividend is accounted for. However, because completion is only expected in 2027, this translates into an annualised return of just 5%. Local deals look decidedly more lekker in comparison.
Teck has even traded above Anglo’s bid at times, reflecting hopes of a competing or improved offer. The newly released 437-page circular confirms the group was courted by Vale, while activist investor Palliser has pushed Rio Tinto to outbid Anglo.
But Canada’s wariness of foreign takeovers, Anglo’s concession to shift its HQ to Vancouver, and founder Norman Keevil’s super-voting rights make a bump unlikely. Added to this, recent Canadian discomfort over the combined group retaining its primary listing in London increases execution risk. With a thin spread, long timeline, limited upside and meaningful risks, this is an arbitrage opportunity best avoided.
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