Barron's says arbitrage spreads on pending buyout deals are wide, offering traders willing to bet the deals will close a healthy return, as the markets continue to worry deals may fall through. Two recent factors -- a general market slide, and Cerberus's decision to walk away from its deal to buy United Rentals (NYSE:URI) just three days before it should have closed -- have investors jittery other pending deals may lapse. "I can't blame people for being nervous," Roy Behren of the Merger Fund, which specializes in takeover-arbitrage situations, says. "But we think there are some extremely attractive opportunities."
The deals he likes: Thomas H. Lee and Bain Capital's $26 billion/$39.20-a-share buyout of Clear Channel (CCU-OLD) trades at a significant discount ($34) to the January 31 deal-closing price, despite Lee co-president Scott Sperling's recent statement that Clear Channel's radio business, "is a great free-cash-flow business," and that its billboard business, "has great growth." Takeover arbs can make $5.50/share, or about 85% annualized. Shares of Harrah's (HET) trade at $87, a $3 discount to its scheduled $90, Jan. 31 closing price, or 18% annually. Odds are high the deal will close, because Wall Street considers gambling stocks recession-resistant. At $40, shares of BCE (NYSE:BCE) offer arbs a 28% return if the deal closes for $43.53 on March 31. And TD Bank's (NYSE:TD) scheduled acquisition of Commerce Bancorp (CBH) for $38/share offers investors a current 22% return.
Sam Zell's planned buyout of Tribune (TRB) for $34/share offers a 115% arb premium on today's $28.63, but one analyst says the deal's "no better than 50/50."
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