Energy East Risk Reward

The arb game is all about risk and reward. On 8/21 I picked up some Energy East (Ticker: EAS) @ $26.69. Energy East is in the process of being acquired by Iberdrola SA, a Spanish utility company, for $28.50. The final regulatory hurdle to approve this merger is a vote by the New York regulators. The vote was originally scheduled for Wednesday 8/27, but was cancelled due to scheduling conflicts with two of the commissioners. The vote has been rescheduled for Wednesday 9/3. Basically, a majority vote is needed to move this merger forward. There were a total of 5 commissioners scheduled to vote on the deal, but one just dropped out. Now with 4 left, you need a 3-1 majority to approve and a 2-2 tie will be viewed as a no go. From what I’ve seen, there’s already 1 no vote so you need the remaining 3 to vote in favor. The risk is too high in this deal falling apart. Is a quick 6.7% worth the risk? I vote no. I’ll settle for a small 1.9% return (sold today @ $27.20) and move on…

Greenfield + Mr. Softy!?

It looks like one of my arb plays is coming to an end. For awhile it looked like there might be a bidding war for Greenfield Online (Ticker: SRVY). The company originally agreed to a buyout offer from a private equity company, Quadrangle Group LLC, for $15.50. Greenfield subsequently received a higher bid during the “go shop” period and an unnamed buyer came in with a $17.50 bid. Yesterday, Quadrangle decided to walk away from the deal, but will pocket some pocket change ($5 million) from Greenfield. The big surprise was that the unnamed buyer turned out to be Mr. Softy (Microsoft). At this point it’s a guaranteed $17.50 in early Q4. I’ll probably wait until the closing to cash out, but I’ll be on the look out for other attractive opportunities.

No News, Good News

I’ve been sitting quietly waiting for my merger arb positions to close. The following deals are expected to close in September: Choice Point Systems (Ticker: CPS), SAFECO (Ticker: SAF), CHC Helicopter (Ticker: FLI) and Tumbleweed Communications (Ticker: TMWD). There may be delays since all of these deals still require some sort of regulatory approval, but so far so good. In this game, no news usually means good news.

New Arb Plays

Sometimes you just have to be lucky… I recently put on a fairly large arb position on Greenfield Survey (Ticker: SRVY), which has agreed to be acquired by Quadrangle for $15.50 per share. I purchased a bunch of Greenfield around $14.60 and subsequently watched the stock go down and down. My first inclination was that the deal was falling apart, but there was not a hint of anything wrong in the SEC filings. So I decided to hang on and wait it out. Well, today the stock shot up 20% because the company received another buyout offer for $17.50. There are a lot of inefficient pricing in the merger plays out there. A few arb focused hedge funds have blown up and are no longer in the game. You can find some nice returns on arb plays if you do your homework. I’m currently in Greenfield Survey, SAFECO (Ticker: SAF), Choicepoint (Ticker: CPS) and CHC Helicopter (Ticker: FLI). I was in Apria Healthcare Group (Ticker: AHG), but got out when they delayed their earnings report due to accounting issues. I may jump back into Apria Healthcare after the earnings report.