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Strategies & Market Trends : Arbitrage Plays

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To: Investor2 who wrote (186)	2/23/2000 7:08:00 PM
From: Robert L. Jacobs	Read Replies (4) of 376

I believe only 86% of HRD shares get $79 cash and 14% of shares get 2.9259 shares of DZA (now about $17.50 per share) or about $71.50. Assuming all HRD shareholders elect cash and everybody gets prorated at 86% cash and 14% DZA stock, this works out to a deal value of about $75.16 per share (based on DZA price on 2/22/00, and assuming DZA price stays at $17.50). HRD at the current price of $71 is about a 5.5% discount to the deal value. You could wait 3 months (or longer) for the payout (which I think will eventually come), which would put your annualized return around 20%-22%. The deal is still awaiting HSR approval, and apparently there are some overlaps of store territories in Virginia and North Carolina, so the FTC could try to negotiate some divestitures as the price for approval. DZA hopes to get through the FTC and close in the second quarter. DZA has financing lined up, is anxious to get the deal done, and everything is in the hands of the FTC (which has been rattling sabres lately such as in the ARC/BPA deal, although I doubt that this would get the same absolute blackball), and I believe ADZ is prepared to negotiate.

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