Friday, June 10, 2011

L-1 Identity Solutions

It hasn’t been fun lately with the busted deals in Big Lots (Ticker: BIG). and Gen-Probe (Ticker: GPRO). I cut my losses in both of those positions. I kind of drifted to a more aggressive style with some event driven positions. Hey, I simply got too greedy and paid the price… It’s obviously safer to focus on announced deals and just play the spread until the deal closes.

I’ve been keeping a close eye on L-1 Identity Solutions (Ticker: ID), which is being acquired by Safran, the French defense company. The closing of the deal has been delayed several times due to the CFIUS review process. It’s currently in the 45 day extended review period and I believe the probability is very high that CFIUS will approve this merger. The spread right now is ~ 5.5%, which isn’t bad if the company receives approval by July 18th (the expiration date of the 45 day review period). I’ve actually had very good luck with defense type companies tied up with the CFIUS review process. I initiated a position at $11.35.

I did some digging and here’s a nice little write up from: TheDeal Magazine, Risk arbitrage: June 13, 2011

L-1 Identity Solutions Inc.
Safran SA
Deal value $1.1 billion
Spread 06/06/11 85 cents, or 7.6

The $1.1 billion merger of L-1 Identity Solutions Inc. with Safran SA of France is mired in an extended review by the U.S. government, but the deal will probably be cleared.

L-1 and Safran are now under a review scheduled to expire July 18. This period, for a 45-day national-security probe, could be brought to an earlier close by execution of a definitive mitigation agreement if the parties come together.

L-1 continues to believe that progress is being made toward reaching a definitive mitigation agreement satisfactory to all parties as soon as practicable, although there is no assurance this will occur.

The Committee on Foreign Investment in the United States oversees the security implications of deals involving U.S. assets being purchased by foreign entities.

The process is an initial 30 days followed by a potential 45-day extended review. Safran has refiled repeatedly to stave off the extended review. L-1 has previously said the parties have made meaningful progress with the review and are working on a mitigation agreement, with a resolution likely by mid-June.

Allowing the review to move forward is a sign that the parties are close to a resolution.

L-1 provides identity security services including fingerprinting, iris identification technology and credential production; 90% of L-1's business is government related, and its credentials business includes contracts for 80% of driver's license production in the U.S. and contracts for the manufacturing of U.S. passports.

CFIUS has been looking at how sensitive information regarding this documentation will be protected.


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