moneycontrol.com network18online.com

 

SENSEX: 73651.35 655.04

NIFTY: 22326.90 203.25

Multi Baggers

Aashish Tater

5.30 AM Jan 1st 1970

Tree House

BSE ID : 533540     NSE ID : TREEHOUSE

RECOMMENDED PRICE 77.00

PEAK FROM RECO 80.95 5.13%

CURRENT PRICE 22.00 Resource id #12

Treehouse is to merge with Zee Learn in the ratio of 10 shares of tree house to get 53 shares of Zee Learn. We recommend this stock to BUY at Rs 77 with a target price of Rs 110-125.

Tree House Education and Accessories

"Arbitrage Opportunity for ZEE Learn shareholders and for patient investors looking for education play"

Key Triggers:

a) Treehouse is to merge with Zee Learn in the ratio of 10 shares of tree house to get 53 shares of Zee Learn.

b) Tree House and Zee learn compensate each other and act as perfect blend for growth its like power of 2+2 equals  5

c) Post merger stock of zee likely to test 22 and with eventual growth we expect stock to test around 40 levels ( time horizon 2 years post merger for target of 40).

d) Zee learn will be a one stop shop where higher margins from Treehouse will compensate and augment well for growth.

The Big Arbitrage:

The board of both the companies have approved for the merger, now post audited financial result  both the companies will file for approval in the high court and that’s why the stock is holding back as of now. Zee Learn posted good q4 nos. and Tree house has scheduled its meeting on 29th of May Sunday .In the mean-time shareholders creditors and other statutory approval will be taken so assuming once the result for q4 is finalized it will require 60-90 days window to get all the necessary approval one can safely assume the merger cut-off date can be oct-dec period.

So let's assume it takes 6 months from here on appx. for merger to complete. The scenario by Oct- December will be following:

ZEE LEARN MERGER WITH TREEHOUSE RATIO 53 FOR 10

PRICE OF ZEE LEARN 28*5.3 DERIVED PRICE OF TREEHOUSE 148

CMP OF TREE HOUSE 77

If one is a  long term investor and owns 5 SHARE of ZEELEARN SELL IT AND BUY 2 of TREEHOUSE technically YOU GET BUY ONE GET ONE free.

Thus if price of Zee learn even if it falls to 16 one can make 10% arbitrage in it & we expect price to once test the 22 odd mark before stock stabilizes post merger. In such scenario one makes 50% return.

There is a small concern in market that it was a White Knight activity used to safeguard Treehouse and thus merger will not come through. But we feel such tactics will not be used by ZEE group as this will leave a scar on whole group so its highly unlikely they back-out from the deal. Thus assuming the concern to have redundant probability,we feel it has low chance of getting triggered. Remember treehouse had no issue on financials except for the fact the promoter shares were pledged and once pledged shares got triggered it led to massive accidents and price tumbled.

Now with better promoter pedigree to come in the Treehouse business looks lucrative and will add to ZEE learn shareholders so the situation is win win and will give Zee learn areas where they had least focus previously.

Interestingly, FII’s have bought small chunk in block deal of ZEE learn so it seems they find the 28-30 Rs range attractive from longer term perspective.

The merger benefits definitely augurs well for Zee Learn shareholders and not Tree House Shareholders when it was announced but if one buys now we feel the risk reward is extremely favorable and one should also keep eye on outcome of board meeting. If Treehouse announces dividend and gives clarity on the merger, the arbitrage opportunity will be reduced further. Thus for short term traders one can even look at 88-92 as an opportunity to exit.

This is more of a mathematics and working on the dates ahead we feel the concerns are priced in and ZEE should not have acted as white knight as it has larger business that may get affected on backing out from deal .Thus, We find the opportunity as extremely lucrative and the process of filing starts with latest audited results merger reports etc. One can also check for more updates to below link on further proceedings.

We recommend this stock to BUY at Rs 77 with a target price of Rs 110-125.

Risk & Concern: Delay of merger or further issues of backing out etc.

 

Disclosure (SEBI Registration Number for Aashish Tater :  INA300001206)

Stock Ownership - No

Stock traded in Last 30 days ( No trading or investment activities done) - No

Stock Recommended to Clients - Yes

Remuneration/Benefits received from company in 12 months - No

Merchant Banking Market Making activities / projects - No

Any arrangement with co. to affect the report write up - No

Disclaimer: Aashish Tater is an investment adviser based in Kolkata, INDIA. At the time of writing this article, he, his firm and dependent family members have no position in the stocks mentioned above. The author invites readers to send him email and welcomes comments, feedback & queries at query@fortunewizard.com. This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.

Super Combo
  3200

Powerful mix of technical and commodity packs with timely expert.

Technical
2000

Designed especially for traders looking to tap the profit opportunities of volatile markets.

Commodities
2000

Stay on top of the Indian Commodities Market with commodity trading calls Intraday, and Positional (Short & Long-Term Calls).

Log on to

http://m.poweryourtrade.com

on your phone and stay updated on the go!

ISO 27001 - BSI Assurance Mark