Comments on: Use Arbitrage! The Tribune Company Example http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/ Value Investing Blog Mon, 16 May 2011 10:55:06 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: (MikeR) http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/#comment-1969 (MikeR) Thu, 07 Aug 2008 05:50:13 +0000 http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example#comment-1969 What am I missing with EAS? EAS is a diversified utility in the northeast. EAS is trading at $25 with a 52-week low of $22.26. Iberdrola is trying to acquire EAS for $28.50 cash per share of EAS. There are concerns that NY regulators will impose unacceptable condition on the deal and it will fall through. The September $22.50 strike puts are bid at $0.90. The worst case seems the deal falls through before the puts expire in 44 days and EAS trades down to the neighborhood of its 52-week low. So you end up with EAS put to you at $22.50, with a dividend yield at that price of 5.5%, plus the $0.90 per share put premium. I must be missing something for the MMs to be pricing such a premium in those puts? What am I missing with EAS?

EAS is a diversified utility in the northeast. EAS is trading at $25 with a 52-week low of $22.26.

Iberdrola is trying to acquire EAS for $28.50 cash per share of EAS. There are

concerns that NY regulators will impose unacceptable condition on the deal and it will fall through.

The September $22.50 strike puts are bid at $0.90. The worst case seems the deal

falls through before the puts expire in 44 days and EAS trades down to the

neighborhood of its 52-week low. So you end up with EAS put to you at $22.50, with a dividend yield at that price of 5.5%, plus the $0.90 per share put premium.

I must be missing something for the MMs to be pricing such a premium in those

puts?

]]> By: (MikeR) http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/#comment-1073 (MikeR) Wed, 19 Dec 2007 09:49:26 +0000 http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example#comment-1073 Looking good, I sold some more Dec 27.5 stirke puts this morning for $0.75. Looking good, I sold some more Dec 27.5 stirke puts this morning for $0.75.

]]> By: (MikeR) http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/#comment-1045 (MikeR) Mon, 10 Dec 2007 18:07:27 +0000 http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example#comment-1045 Joe, Yes, they are entirely gone, lol. I look forward to your thoughts on writing puts. Joe,

Yes, they are entirely gone, lol. I look forward to your thoughts on writing puts.

]]> By: Joe Ponzio http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/#comment-1044 Joe Ponzio Mon, 10 Dec 2007 17:41:41 +0000 http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example#comment-1044 I'm not a big fan of puts. I think I'll post my reasoning tomorrow. MikeR - Close call...how short are your nails after last week? Did you bite them off entirely? Night - I'll have some news on the book soon. I’m not a big fan of puts. I think I’ll post my reasoning tomorrow.

MikeR – Close call…how short are your nails after last week? Did you bite them off entirely?

Night – I’ll have some news on the book soon.

]]> By: Jeff http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/#comment-1034 Jeff Thu, 06 Dec 2007 10:41:23 +0000 http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example#comment-1034 I've owned this since about 27.50. Here's a good couple of posts on the topic by Saul Sterman. He's been adamant about the deal going through since August. http://www.crossprofit.com/article.asp?id=140 I’ve owned this since about 27.50. Here’s a good couple of posts on the topic by Saul Sterman. He’s been adamant about the deal going through since August.

http://www.crossprofit.com/article.asp?id=140

]]> By: (MikeR) http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/#comment-1033 (MikeR) Thu, 06 Dec 2007 09:11:45 +0000 http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example#comment-1033 Night, I was really close to buying my 27.5 strike puts back yesterday and take my losses when it got close to 28, lol. Luckily I did not! Night,

I was really close to buying my 27.5 strike puts back yesterday and take my losses when it got close to 28, lol. Luckily I did not!

]]> By: Night http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/#comment-1030 Night Thu, 06 Dec 2007 06:34:26 +0000 http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example#comment-1030 Thanks, MikeR.. I think I might pick that up! These sort of deals sure are interesting :D. Anyone get lucky, or was smart enough, to of bought it yesterday when it was at $28 or so? News today seems to of nearly sealed the deal.. Time for me to hang on til the 1st or for some serious news, in any case. Thanks, MikeR.. I think I might pick that up! These sort of deals sure are interesting :D .

Anyone get lucky, or was smart enough, to of bought it yesterday when it was at $28 or so? News today seems to of nearly sealed the deal..

Time for me to hang on til the 1st or for some serious news, in any case.

]]> By: (MikeR) http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/#comment-1026 (MikeR) Wed, 05 Dec 2007 15:00:13 +0000 http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example#comment-1026 Joel Greenblatt in his book "You Can Be a Stock Market Genius" (yes the title is a turn off) has many interesting case stodies of arbitrage, spin-offs, restructuring, bankruptcy, etc plays. If I recall correctly he talks about reading the Wall Street Journal, Barron's, etc to find these plays. Joel Greenblatt in his book “You Can Be a Stock Market Genius” (yes the title is a turn off) has many interesting case stodies of arbitrage, spin-offs, restructuring, bankruptcy, etc plays. If I recall correctly he talks about reading the Wall Street Journal, Barron’s, etc to find these plays.

]]> By: Joe Ponzio http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/#comment-1019 Joe Ponzio Wed, 05 Dec 2007 14:26:38 +0000 http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example#comment-1019 As you'll see in the blog post, I put the chance of the deal failing at about 20%. This is certainly not a "no-brainer", but it does present an opportunity with great upside potential. The <a href="http://www.reuters.com/article/marketsNews/idUKN0455142220071204?rpc=44&pageNumber=1&virtualBrandChannel=0" title="proposed legislation" target="blank" rel="nofollow">proposed legislation</a> shouldn't affect the Tribune deal as it will affect future reviews. Tribune's waiver will likely be grandfathered in as it was granted when the legislation was not in place. I looked at the OTM (out of the money) put and call activity, and it appears to be fairly balanced. I never use investor sentiment or price as a guage because, for the most part, investors and institutions are generally wrong and usually earn returns equal to or less than the markets. What's the move here? Consider buying Tribune with some protection. <ol> <li>Throw a sell stop on your position to limit your downside;</li> <li>sell calls against your position to lower your effective net basis;</li> <li>roll the dice and buy TRB because you think the deal will go through;</li> <li>find a new opportunity.</li> </ol> If you have a ton of doubt or are entirely unsure and uncomfortable, move on. I say it a lot, but only because <strong>it is the right strategy!</strong> Hope that helps! As you’ll see in the blog post, I put the chance of the deal failing at about 20%. This is certainly not a “no-brainer”, but it does present an opportunity with great upside potential.

The proposed legislation shouldn’t affect the Tribune deal as it will affect future reviews. Tribune’s waiver will likely be grandfathered in as it was granted when the legislation was not in place.

I looked at the OTM (out of the money) put and call activity, and it appears to be fairly balanced. I never use investor sentiment or price as a guage because, for the most part, investors and institutions are generally wrong and usually earn returns equal to or less than the markets.

What’s the move here? Consider buying Tribune with some protection.

  1. Throw a sell stop on your position to limit your downside;
  2. sell calls against your position to lower your effective net basis;
  3. roll the dice and buy TRB because you think the deal will go through;
  4. find a new opportunity.

If you have a ton of doubt or are entirely unsure and uncomfortable, move on. I say it a lot, but only because it is the right strategy!

Hope that helps!

]]> By: Night http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example/#comment-1018 Night Wed, 05 Dec 2007 14:16:50 +0000 http://www.fwallstreet.com/article/91-use-arbitrage-the-tribune-company-example#comment-1018 I am not experienced with this sort of activity in the least, but from an article on MSN "The legislation, even if successful, is not expected to affect the proposed $8.2 billion buyout of the Tribune Co., which was approved by the FCC last week. It is unclear whether there would be any potential long-term impact on the company." - <a href="http://news.moneycentral.msn.com/ticker/article.aspx?Feed=AP&Date=20071204&ID=7900353&Symbol=TRB " title="source" target="blank" rel="nofollow">source</a> Not sure if the 'unclear potential impact' will have an effect on Sam Zell's buying decision or not.. Also, from the press release on Nov. 30th "The company also asked for an extension of existing waivers of the FCC's cross-ownership rule in New York, Los Angeles, Hartford and South Florida -- markets in which Tribune operates both a newspaper and television station. The waivers granted today are temporary, pending the outcome of the FCC's ongoing review of media ownership rules. In Chicago, the company will be exempt from cross-ownership restrictions through a permanent waiver provision. " -source So, I guess they will always have the cross-ownership in Chicago.. but the potential of losing the ones in NY, LA, Hartford, South Florida may deter the deal? I am completely new to analyzing this sort of deal.. How strong of a negative effect is this? I am not experienced with this sort of activity in the least, but from an article on MSN

“The legislation, even if successful, is not expected to affect the proposed $8.2 billion buyout of the Tribune Co., which was approved by the FCC last week. It is unclear whether there would be any potential long-term impact on the company.”

- source

Not sure if the ‘unclear potential impact’ will have an effect on Sam Zell’s buying decision or not..

Also, from the press release on Nov. 30th

“The company also asked for an extension of existing waivers of the FCC’s cross-ownership rule in New York, Los Angeles, Hartford and South Florida — markets in which Tribune operates both a newspaper and television station. The waivers granted today are temporary, pending the outcome of the FCC’s ongoing review of media ownership rules. In Chicago, the company will be exempt from cross-ownership restrictions through a permanent waiver provision. ”

-source

So, I guess they will always have the cross-ownership in Chicago.. but the potential of losing the ones in NY, LA, Hartford, South Florida may deter the deal?

I am completely new to analyzing this sort of deal.. How strong of a negative effect is this?

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