Odds Update for EMAG Arbitrage


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There has been a real good discussion over at the original EMAG post and with just 1 week remaining until Feb 11, there has been no news (good or bad) from any party. The spread when I wrote the first post was at 47% with a price of $1.94.

After the initial post, I couldn’t find additional information on SIBL, HSSO and EMAG to counter my reasonings so I bought at $1.94 on Jan 27. On Feb 3, I liquidated by PSD position in order to take another bite at $2.40.

As you can see below, I’ve upped the probability of success to 80%. Why? If you look at slide 10 in the presentation (image below), HSSO’s future depends on acquiring EMAG.

hssemag

EMAG will become the “platform” for further growth and strategic acquisitions. With SIBL holding a majority stake, my assumption is they are also backing HSSO. An event like last December shouldn’t occur again.

Odds of the Merger

Current Price: $2.47

Upside Potential: 15% / $2.85

Downside Potential: 50% / $1.23

Probability of Success: conservative: >60% | realistic: > 80%

Probability of Failure: conservative: < 40% | realistic: < 20%

Time Frame: min: 3 weeks | max: 11 weeks (3 months) until March 31,2009. min: 7 days | max: until March 31, 2009 (highly unlikely at this point)

Disclosure

I hold EMAG at the time of writing.

[tags]special situation,EMAG,HSS,SIBL,merger,arbitrage[/tags]

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