The following piece of news appeared on the Financial Times news feed on Friday 26th March 2021,

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Question:

The following piece of news appeared on the Financial Times news feed on Friday 26th March 2021, 10.34am.

"Metals manufacturer Worthington Industries (WI) announced the start of contacts with the metal and steel products producer United States Steel (USS) about a 1.3billion ($2.1 billion) merger. Apart from exploiting synergies in the North America flat-rolled steel and heavy industry custom-made platforms, pipes and pallets, the announcement might attract the attention of large competitors such as Nucor or a wider array of investors. Both companies have experienced significant reductions in turnover (-18% for WI and -24% for USS), but the smaller and more dynamic WI enjoys an upwards trending gross profit margin of 14.5% contrary to the ailing USS, which analysts have been considering overvalued. The suggested all-share merger, according to the proposition of WI, would see WI shareholders having a 37% of the expanded group with USS holding 63%. This company share follows the current market valuations of the two companies, according to Friday 19/3 closing prices. Press releases from both firms referred to the common industry focus and the complementary nature of the two firms, with WI focusing more on value added pre- and custom-made industrial products (wiring, cabs, stations, doors, various components) and USS being an established producer of steel mill products, sheets, slabs and piping. The common challenges the merger intends to address will most likely lie on management and operational costs, increasing revenues, cutting costs and increasing their market share. Analysts cautiously welcomed the news, with Fantmas industry specialist Dave Lombardo commenting on the positive economies of scale but also noting that the more active, aggressive business profile of WI in contrast to the more traditional attitude of USS may cause frictions. United States Steel opened at 3.638 USD (11% rise) today, while Worthington Industries increased by 6.5% to 4.422 USD."

It is Wednesday 31st March. Apart from that piece of news, you have not been paying attention to the two firms over the last week. While you are thinking on how to invest some spare funds (your current portfolio is well diversified), you overhear the seasoned investment banker from the nearby desk mumbling something about "an arbitrage opportunity". You check the stock prices over the last days on Eikon (below). Do you agree with your colleague or not, and which company would you trade or not trade? Provide a complete and clear assessment.

HINT: What is the combined market value of equity of the two firms? Calculate 37% of that and 63% of that. Are the market prices in line with such a value split? If not, how do you take advantage of that?