Risk Arbitrage

I spotted this article on Bloomberg about risk arbitrage spreads increasing as a result of the current “credit crisis”. www.mergerinvesting.com provides a list of all pending merger and buyout transactions. The two that caught my eye were Sallie Mae and Penn National Gaming.

Sallie Mae

Sallie Mae currently trades at US$48 a share, while the buyout offer from JC Flowers stands at US$60 a share. The deal includes a break fee of US$900m should either of the parties try to cancel the deal. The US Government may cut subsides to Sallie Mae, which could hurt the chances of the deal being completed.

Quote from the Bloomberg article:

A global rout in equities helped send SLM, or Sallie Mae, 20 percent below the US$60 a share offered by J.C. Flowers & Co., the buyout firm led by former Goldman Sachs Group Inc. partner Christopher Flowers. Despite the tumble, Alves (fund manager at Braga, Portugal-based Spot Gestao Financeira) is convinced the deal will go through.

Penn National Gaming

Fortress Investment Group has made an offer to buyout Penn National Gaming an owner of casinos and horse-racing tracks for US$67 a share, while the company currently trades at US$56 a share.

Couple of points from the company’s press release:

  • The deal is subject to shareholder approval, FTC approval and approvals from state gaming and racing authorities.
  • The merger agreement does not contain a financing condition.
  • If the merger is not consummated by June 15, 2008, the per share purchase price will be increased by US$0.0149 per day.

Quote from the Bloomberg article:

Penn National Gaming Inc which agreed to be bought for US$6bn in June, offers the “biggest opportunity” among deals that have yet to close, said Penn Capital Management’s Eric Green.

Penn National, the owner of 18 casinos and horse-racing tracks, agreed to be taken private by buyout firms including Fortress Investment Group LLC on June 15. New York-based Fortress in February completed the first initial public offering by a U.S. manager of private-equity and hedge funds. That limits the possibility the firm will walk away from the deal, Green said.


2 Responses to Risk Arbitrage

  1. A.J. Roberts says:

    That website you posted above is pretty much worthless. It only re-hashes old stories that are available for free elsewhere. In order to understand these situation, you need a source that offers analysis and research.

    This one offers both: http://www.maresearch.com

    It’s been around for a decade…

  2. riskarb says:

    I don’t see how anyone can claim the website is worthless. It offers information for free that was useful to this author, plus it sounds like it offers more information for a fee. The site you suggested (and obviously have a vested interest in) offers nothing to visitors but a sales pitch. Also, I don’t see how you would provide anything but publicly available information on your site, unless you have insider information. Maybe you should spend more time improving the quality of your site instead of going to a blog and bashing your competitors.

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