Fox buys Roku for $22B as streaming wars heat up — play the takeover premium
Thesis
When one company agrees to buy another, the target company's stock usually rockets up to just below the buyout price. However, the stock often trades at a slight discount to the final deal price because there's a small chance regulators might block the merger or the financing falls through. With Roku trading at a four-year high, there is still a small gap between today's price and the actual buyout value. Investors can buy Roku now and essentially collect that gap as free money if the deal closes successfully over the coming months.
Strategy approach
Build an arbitrage/spread strategy on Daily timeframe. Monitor the spread between ROKU price and the implied acquisition price of the Fox deal (stated at $22 billion enterprise value). Enter long ROKU if the stock price lags the implied deal value by more than 3%. Exit when the spread narrows to under 1%, with a 5% hard stop loss in case the deal faces regulatory rejection.