The talking heads all seem to agree that Lone Star’s deal to buy out troubled Accredited Home Lenders (LEND) will go through. I just heard it on CNBC, read it last night on RealMoney.com, and in Forbes.
With a buyout price of $15.10 and a close on Friday of $6.97, the spread is huge. That is not an opportunity; it's a danger sign. It shows that the best and brightest arbitrageurs on the street, who have access to far more information than you and I, don’t believe the deal will close as negotiated. Neither do I.
I confess that my skepticism is a snap judgment. I have not read the purchase agreement and there is a chance that, as Cramer argues, it is airtight. But usually there are ways out, either by exercising express options to terminate or by challenging the veracity of the sellers representations and warranties. Lone Star may also get a hand from regulators. As the company admits, the deal cannot close unless it gets 95% approval from state regulators. The company says that this requirement shouldn’t prevent closing, but who knows.
Bottom line: If you think you have found an easy triple, think again. While it is possible that Lone Star will proceed with the deal as negotiated, I imagine that a fleet of lawyers are now preparing an exit strategy.
Disclosure: No position.