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Player Avatar TSIF (99.96) Submitted: 12/7/2011 5:53:33 PM : Underperform Start Price: $2.64 TLB.DL Score: +2.52

I was already eyeing "The Talbots, Inc" before the pop today, but in reality this is most likely a low return play and I probably should have let it be.

The Talbots, Inc got a boost today from a frustrated investor, Sycamore who owns 9.9% of the shares, who offered $3 per share on what was apparently a shot in the dark of a figure since they haven't examined The Talbots books in sufficient detail to put in a final offer.

There are many questions in this type of arbitrage play and The Talbots, Inc is an especially conflicting animal to digest in this area.

1. First of all, The Talbots, Inc directors have been firm that they are not interested in a buyout and have some "poison pills" in the wings that would have to be flushed first.
2. Second, if they agreed to be bought out, their books would have to withstand scrutiny.
3. Third, there is the question of whether the offer was serious, or simply a play to wake up management and/or attempt to get the attention of any other possible suitors to up the bid and let them bow out and recoup some of their current investment.

The share price oscillated between $2.40 and $2.65 today suggesting that for every share that someone bought hoping for a premium from a bidding war or a higher offer supported by Talbots books from Sycamore. Analysts upped their share price estimates from $1.00/$1.50 to the $3.00 offer, but seem mixed on the likelihood of it being completed.

In the short run the current holders who bought in below $2.50 could decide to sell and book profits or more frustrated longs could decide to book their losses for end of year and take the current price. There is still the chance the offer gets accepted in which case the share price should go up about 5-6% from here. There are two lawsuits already and will be more on both sides of the issue, but these generally will not affect the stock price.

Short term trade. This is probably dead money for awhile. If the deal doesn't go through and The Talbots is belligerent in their reply then this will drop quickly. If this lingers, I'll drop out on a good market up day.

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