There had been a considerable amount of discussion about the acquisition of Penn National Gaming, both in these comments and in a few other comments around the site. As the deal stands right now, Wall Street appears to be leaving $18 a share — or 38% — on the table for today's workout investors.

What will upset the applecart?

Continue Reading Penn National Gaming — Workout or Worthless? ››

In Workouts Work Out In Down Markets — Part 3, I discussed another workout opportunity in the acquisition of Radiation Therapy Services (RTSX) by Vestar Capital Partners in a going-private transaction. The deal was pending shareholder approval and customary closing conditions. Since that post on January 21, 2008, the price fluctuated quite considerably and shook the nerves of a lot of holders.

This is a prime example of why you should use price as a tool, not a guide.

Continue Reading Use Price As A Tool, Not A Guide ››

There have been a lot of great questions regarding workouts over the past week of the Workouts Work Out In Down Markets series (beginning here). Some visitors jumped into the comments and posted free resources to track upcoming mergers, acquisitions, and going private transactions.

We all have that looming question in the back of our heads: Can I really make low-risk money when all these smart people are seeing the same deals and passing?

Continue Reading Workouts Work Out In Down Markets - Part 4 ››

In Part 1, we looked at the various steps involved in a merger, acquisition, or going private transaction. As the transaction progresses along those steps, the spread between the market price and the closing price tends to close as the transaction becomes more finalized and less risky. In Part 2, we looked at a few deals and analyzed the risk vs. reward as well as the need to really dig in to the SEC filings.

Workouts are meant to be virtually "risk-less" transactions for idle cash in your portfolio. Let's dive in with that in mind.

Continue Reading Workouts Work Out In Down Markets - Part 3 ››

So, you're sold on using arbitrage to enhance your portfolio. In fact, you've always known that arbitrage can offer virtually risk-free profits; still, it can be somewhat scary to jump in with both feet. Rather than getting into the theoretical aspects of arbitrage, let's take a look at some real life examples of when you can have a high degree of confidence...and when you should be leery.

Continue Reading Workouts Work Out In Down Markets - Part 2 ››

If you"ve read Mohnish Pabrai's The Dhandho Investor, you"ll likely recall a chapter entitled "Use Arbitrage!" If you"ve been following F Wall Street for a while, you"ll remember (and possibly have made money on) Use Arbitrage! The Tribune Company Example. Why do we say you should use arbitrage? In fact, what is arbitrage and is it a strategy for the faint of heart?

Well, in a down market, it is one of the few strategies that can save your portfolio...and your nerves.

Continue Reading Workouts Work Out In Down Markets - Part 1 ››

There is a school of thought that says that the value of a business is entirely in its future cash flows and that all assets are tools that provide that cash flow. In essence, many people believe that assets and equity should be ignored entirely. Let's look at it from a private owner perspective and follow it up later in the week with an examination of Buffett's early partnership letters:

Continue Reading Don't Ignore The Assets ››

If you recall from an earlier post, I showed a quick potential profit from Sharper Image — in that case, a few-day return of more than 40% because the stock was trading so far below its break-up value. As time marches on and the ability to generate cash seems a distant goal, the value of that company continues to slip, as does its break-up value. (Remember: Every day that it can't generate enough cash is another day that the company will need to dip further into savings, assets, or debt to finance operations.)

Quick, large profits can come from buying companies for well below their break-up value. I was revisiting some of Buffett's early partnership letters (no, I can't send them to you and I won't post them without Buffett's express permission), and I came across this 1960 play that resulted in massive, short-term profits from conservative value investing.

Continue Reading Intrinsic Value, With Short-Term Results ››