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Special Situation of the Day...Merger Arbitrage



May 21, 2010 – Comments (0)


Here's an interesting trade that I came across this morning.  

CKE Restaurants (CKR), the owner of Carl’s Jr. and Hardee’s, currently has two parties in a bidding war for it, private equity firms Thomas H. Lee Partners and Apollo.  Both groups appear willing to pay $12.55 per share for the company.  

After the market implosion over the past several days, CKR is trading at a 4% discount to those firm offers.

It is entirely possible that one of these bidders will feel compelled to increase its offer for the company or that another third party, such as Wendy’s/Arby’s Group (WEN) in conjunction with another PE partner, will swoop in with a higher bid.

By making this trade at $12.05 or so we are almost assuring ourselves of a $0.50/share profit in a short period of time, likely anywhere from 4% to 16% annualized depending upon how long this process drags on, in a bearish market with the potential upside of a higher bid in the future.  I like those odds.


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