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motleyanimal (36.08)

EAS.y Money



March 19, 2008 – Comments (2) | RELATED TICKERS: EAS

I am always looking for discounts and arbitrage situations.

An example, EAS is an electric utility in the northeast. There is a
buyout in place for $28.50 per share, yet it trades at around $25.
The sale must be approved by a judge because the NY regulators
oppose it. The market is saying the deal won't be approved, yet the
likely result is unknown. I buy here because the arbitrage spread is
13% and the worst that can happen is that I will own a mediocre
utility that yields a 4.9% dividend if the deal is not approved.

Evidentiary hearings on the acquisition started March 17.


Energy East Corp. (EAS), Iberdrola SA

Premium offered: $3.25 or 12.87%

Acquirer: Iberdrola

Target: EAS

Offer per share: $28.50 cash

Value of outstanding common equity: $4,503,000,000

Target share price: $25.25

Expected closing: First half of 2008

2 Comments – Post Your Own

#1) On March 20, 2008 at 1:33 AM, StockSpreadsheet (67.78) wrote:

Check what the price was before the buyout got announced.  For instance, Microsoft offered about a 67% premium to the price of Yahoo! stock on the day it was announced.  If the buyout doesn't go through, (and Yahoo! management is trying to prevent the deal from going through), then the price of Yahoo! could give up that 67% premium or more, causing a sharp fall in a stock that has been falling for more than a year. 

The same could be true for your utility.  Utilities are usually not bought out at 67% premiums, but 25% is not unheard of.  Therefore, there may be more downside in the stock than you are currently calculating.  You should also do your DD on the stock to see if you would be buying it at this level if there was no buyout offer in place.  If you would not buy it without the buyout offer, then that also is a sign that there might be more downside to this stock than you are currently including in your calculations.

Not saying it is a bad play, since I didn't look at your stock or read anything about the buyout, but the above are things you should consider if you haven't already.

Good luck.  Hope it works out well for you.


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#2) On March 20, 2008 at 9:41 PM, motleyanimal (36.08) wrote:


Thanks for commenting. EAS is not a stock I would normally buy, but I could tolerate it in my portfolio. I am in below the current price so I have some downside cushion.

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