Marc Rappaport

Merger Review: Puget Energy

Cheers! Again, well thought through, Jae. Much thanks.

Puget Energy: An Interesting Spread to Watch

I have been wathcing MA spreads all throughout December and, for the most part, deal spreads are wide. Take for example, OVEN/MIDD which as recently as December 23 (TWELVE DAYS AGO) had a spread of 11.22%. I believe that deal closed yesterday as far (as the reorg department at my brokerage firm claimed.)

Fear permeates many areas of today's markets and Merger Arb seems no exception.

Merger Review: Puget Energy

Jae,

Much thanks for your due diligence and pouring through the details of available documents. (I am rather new to Merger Arb but intrigued by the spreads in today's markets.)

I am less concerned with the exactness of closing date (i.e. two weeks) than the deal closing period. If the deal were to close in the next two quarters I'd say the current return is extremely attractive.

As for the spread, I've noticed larger than average spreads in general in the market over the past quarter. And actually, it makes sense. I imagine contributing factors are 1) an extremely risk-averse market 2) huge 2008 "broken deal" volume 3) difficult credit markets for deal financing and the over publicized 4) historic uncertainty/volatility... weakness. I noticed the MER-BAC deal had 18% spread two Thursdays before the deal closed (of course it was on a day the market feared Citi would collapse) and that was a deal our very government (Treasury) would make sure got done.

Anyway, again, I'm very grateful for your work on this deal and sharing it with us; It influenced my investment decision and I'd be appreciative of any updates.


On Jan 02 02:01 PM Jae Jun wrote:

> @ Marc,
>
> It's even been mentioned in the last filing that upon approval, the
> merger will close in 2 weeks. That's why there was a press release
> stating that the deal will not be completed until 2009.
>
> Also, those 78 commitments have been agreed upon for many many months.
> I have read through it and its stuff like, "PSD assures it will maintain
> its level of service", "PSD will work with involved parties to ensure
> fairness" etc etc.
>
> @ User,
> Macquarie had the financing in place for well over a month now. It's
> always been the public counsel trying to delay things and I'm not
> in the least bit worried about the 30 day appeal because it is just
> another excuse for the public counsel to try and use another delay
> tactic which shouldnt work anymore.
>
> The market has no clue since it doesn't read the statements and the
> public hearing filings.
>
> They said the deal was going to be difficult to pass given a 30%
> spread, but that was overcome quite easily except for the unnecessary
> delays.

Merger Review: Puget Energy

I enjoyed your article; especially your point regarding deals that wall street is not on. Touche!

I was just curious about two things:

1. Bloomberg states the deal is "subject to 78 commitments and conditions." Have you looked at these subject items and are they pretty standard?
2. How is it that you are estimating the deal to close in two weeks?