Credit Crisis Yields LBO Arbitrage Opportunities

The credit crunch has raised uncertainties over the completion of many leveraged buy-outs (LBOs) and opened up wider gaps between market and takeover prices. Some LBOs, though, are reasonably certain of closing and yet have had their spreads between market and takeover prices widened, too presenting attractive arbitrage opportunities.

Take the case of BCE Inc. (BCE). At just over $40 a share on the TSX, its shares are trading nearly two dollars under its takeover price. With hefty dividends to be paid before privatization in QI of 2008, investors can earn annualized returns close to 15%.

BCE 1-yr. chart: