Old School Value

The Puget Energy merger has finally been approved on December 30, 2008. After more than 1 year since I first got wind of this deal, the entire deal is expected to close in 2 weeks for $30 cash. Surprisingly, PSD is still trading at a discount to its final closing price. It is currently at $27.50. This still leaves room for a 9% gain with all uncertainty eliminated..

In my last post on PSD, let’s take a step back and review what happened, how I went about doing things, what went right and what went wrong.

It has been announced that the PSD merger will not close by the end of year. The merger agreement requires closing the deal 15 business days after all requirements have been met, including approval by the Utilities and Transportation Commission. Today being the 12th and not expecting an announcement this week, we run out of days in December for it to work out.

A New Question Regarding The Merger

On hearing the news, a slight concern related to financing came to my mind. What happens to the capital if the financing condition is based on a closure date of 2008. Would the money still be available in 2009?

Lately the price of PSD has dropped as much as 10%. If this was a regular market, that could mean something, but we are not in a regular market - it’s still driven by fear and emotions.

The status of the merger has not changed one bit from my last post. There have been no new publicly announced press releases, but some interesting filings with the Washington Utility and Transportation Commission (WUTC) may be of interest.

Recall that I wrote about how the final reply briefs had to be submitted by October 23,2008. Well, there were plenty of submissions and responses. I’ll provide a brief look at what’s been going on.

I’m chartering into inexperienced waters with this topic, so I hope people will provide comments if they have experience with investing in actual liquidations. In this post, I’ll be discussing 2 liquidations. Capital Crossing Preferred Corporation (CCPCN) and HealthShares Exchange-Traded Funds.

Quick Definition

For those unfamiliar, a liquidation is a process where a company is brought to an end. It converts all of its assets into cash. That is, they sell all positions in their portfolios, sell their real estate, inventory, desks, chairs and anything else that may have cash value. Remember how the value of a company is the sum of its future cash flows as well as its shareholders equity? In a liquidation, since there is no more future cash flow, a piece of the shareholders equity is what we are entitled to received.

In part five of the series on special situations, I’ll briefly present the idea of risk (or merger) arbitrage.

This series is based on the book You can be a stock market genius! so for additional information, be sure to read it yourself. Continue reading Profit from Special Situations - Risk Arbitrage >>

Before I begin, let me start by saying that if you are invested in this PSD arbitrage and feel uneasy about the press Puget Energy has been receiving, I encourage you to sell out. You’ll still end up with a profit now and more comfortable nights.

In part four of the series on special situations, I’ll briefly present a recent spinoff. Dr Pepper Snapple.

This series is based on the book You can be a stock market genius! so for additional information, be sure to read it yourself.

Spinoffs can take many forms but a simple definition can be defined as a corporation taking one of its subsidiary or business division and then separating it to create a new company. A spinoff usually occurs because the company wants the public to fully recognize the underlying assets of the division and to get a better valuation of the whole company. The newly created company is then valued by the market independently.

I wasn’t planning to write an update on the PSD arbitrage but a reader asked for my opinion on how I currently see the PSD merger so I’ll share it with everyone else and try to provide additional information.

I have to admit, lately the content of the blog has been evolving to special situations. I’m not sure whether the readers are ok with this, but if not, please let me know. But I digress…

In the meantime, a merger that I have had my eyes on since announcement is Puget Energy. Puget Energy is a holding company but performs all of its operations through Puget Sound Energy which is based here in Seattle, right in my backyard. Continue reading Watch Alert: Puget Energy Arbitrage >>

Silly me. First of all, sorry to disappoint those who were interested in what was supposed to be my first tender. I was too worked up about the odds and closing date of the tender that I completely glossed over the finer details. I didn’t purchase anything today and thankfully, it was a “free” lesson. Continue reading A Tender That Was Too Good To Be True >>

How is an individual investor able to get an edge over millions of others and especially institutions that spend every waking hour analyzing companies and crunching numbers? I mean, the way to profit is to know something that others don’t. Right? Continue reading Profit From Special Situations - Stock Tenders >>

Jazz Technologies (JAZ) announced on May 19, 2008 that they are being acquired by Tower Semiconductor (TSEM). The final decision of the deal is expected to announced dependent on the results of the special meeting of shareholders scheduled for September 17, 2008. When I started to look into this merger yesterday, the spread was at 15%. Today, August 13, the spread fluctuates between 6-9%. However, this still comes out to an annualized gain in the range of 40-72%.

I just wanted to let everyone know that I’ve written a post on another potential merger arbitrage play. With the closing date expected to be Sept 17, those that are interested could start looking into it.

The merger between Aquila and Great Plains has finally been approved. The deal was first announced in February of 2007 and the deal is now expected to close on July 14. It was a long process but certainly worth the investment.

Back in March, I wrote an analysis of the Aquila (ILA) & Great Plains (GXP) workout. Since then, the spread has been steadily closing. When I wrote the first post, the spread was at 21%. Today, that gap has closed to around 7%. Had you or I invested around that time, we would already be sitting on a nice gain of ~10% with very low risk.