I’m pretty new to the value investing game, but I think I really get it.

You want to thoroughly review the investment. Then, if you look at the price and it seems like the price is low to the point where you really can’t see how it could be so low, then you a) thoroughly review your investment again, and then b) buy.

Example:

I bought RTSX at 27.00, which would give me almost exactly a 20% return if the deal goes through.

If the stock were to hit 30.87 (5% from the takeover price) and we were still more than 1 week from the deal, I would probably sell. Even if I wouldn’t sell, I definately woulnd’t buy more at that price.

Looking at the Nokia-Navteq deal, I’m wondering what’s left to be done before the deal closes? Shareholders of both companies agreed with the $78 per share offer, the CFO of Nokia said the financing has been secured (noting that Nokia has enough cash to get the deal completely done without financing), the FTC approved, the deal is expected to close in Q1/08, and the shares of navteq are still trading at around $74… Done deal? Can we know the exact closing date?

Regards,

Math

Taking a look at the filings for Image and BTP, I see no buying or selling. Because of BTP’s stake/control in the company – 41% – BTP would have to announce any purchases or sales within two business days. The fact that they haven’t means one of two things:

1. They are trying to get financing and still want the deal to go through; or,
2. They are going to breach, pay the fine, and move on.

One of the problems with this workout is the following, taken from SECTION 5.13(a) of the AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER:

Parent shall use its commercially reasonable best efforts to obtain the full amount of the Financing on the terms and conditions described in the Revised Financing Commitments delivered to the Company by Parent; provided, however, that in the event that any portion of the Financing becomes unavailable on the terms and conditions of the Revised Financing Commitments, Parent shall use its commercially reasonable best efforts to obtain alternative financing…

I have a problem with this language simply because it says, “Hey, we’ll try and get financing for this, but no promises.” There is also the question of a weak termination fee. The $1.5 million termination fee says, “We don’t have any financing in place, and we can’t promise anything. If we can’t get the deal done, we’ll compensate you for your time. Otherwise, we don’t want to be on the hook for anything.”

Why would they air their dirty laundry in public? By law, they have to keep shareholders informed of any material changes in their business, in the agreement, or in the transaction. Though they do not have to tell you what is happening every day, they do have to inform you of any material matters that might affect your decision to remain or become a shareholder. A failing merger would be considered material.

I’m learning, so please excuse the question if the answer is common knowledge. It seems like pre-merger regulations address large deals more aggresssively than small deals. I am wondering if small companies and buyout firms are sometimes motivated to keep the stock price low until shortly before the deal closes. Wouldn’t it be advantageous for the buyout firm and employees of the acquisition target to buy up cheap shares so: 1) The buyout firm spends less (fewer outstanding shares to buy) at the closing and 2) employees of the acquisition target benefit from arbitrage spread. Next, since this is a small company: most of the news / press about the deal comes from the buyout firm and / or the acquisition target. Aren’t these companies motivated to deliver the worst pre-merger news possible: thus scaring other investors to sell cheap before the deal closes?

I’m asking these questions based upon a current example: Image / BTP / CT1.

Since Friday I’ve seen a bunch of “he said / she said” press releases about pre-merger information exchange disputes and other items that I doubt these companies are required to report. Neither firm has announced the deal is definitely off, but these press release have driven shares down ~60%. What else, besides buying up cheap shares, motivates professionals to air their playground disputes in public?

What do you think of arb opportunity on MYE? I know GS delayed the process to close the deal, but is there still an opportunity? Thanks.

david: The financing was already arranged and the termination fees are significant compared to the size of RTSX. Vestar may back out (that’s the risk of the arbitrage), but there have been no reports of sales from RTSX insiders, Vestar people, or other major holders since the regulatory approval.

RTSX wants this deal to go through. As such, the backing out would likely come from Vestar, if at all. In that case, RTSX would be entitiled to the termination fee – a significant amount of money considering the company’s size.

http://www.news-press.com/apps/pbcs.dll/article?AID=/20080106/NEWS01/801060351/1002

So Vestar should be incentivized to complete the deal.

Anyone know if Vestar is likely to experience problems with financing?

It seems like the recent .75% rate cut would increase the attractiveness of completing this transaction to Vesmark.

I also read (in the NYTimes) they they have a $40 million reverse termination fee. It sounds like these Reverse termination fees are standard fare, and this would not portend anything negative about the likelihook that Vestar would back out.

What’s your take on that Joe?

You speak to many of the salient points involving this deal.

Keep up the good work.

Thanks mate, reading you loud and clear.

Thanks for another great and enlightening series of posts.

Hope all is well in the windy city.

Cheers