Thanks Tom, DYN can walk away from the deal if ENE has
more than 3.5 billion of additional liabilities and/or legal
fees.
It also appears that DYN can buy ENE's prized Natural Gas Pipeline even if the overall deal does not go through.
this article notes the Arb's concerns:
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DJ Some Arb Traders View Enron Stock As Too Risky To Buy
Dow Jones News Service ~ November 12, 2001 ~ 3:42 pm EST
By Janet Whitman
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Enron Corp.'s (ENE) stock price surged Monday on news that the beleaguered energy concern will be acquired by Dynegy Inc. (DYN). But some takeover traders view the stock is too risky to buy because of major uncertainties surrounding the proposed deal.
"I don't know why you'd buy Enron," said Tom Burnett of Merger Insight, an affiliate of Wall Street Access. "You might be better off buying the Enron bonds because at least then you might have some value if the thing doesn't go through, whereas the stock would be worthless if Enron ended up in Chapter 11."
Takeover traders, also known as arbitrageurs, typically bet on pending mergers by selling short shares of the acquirer and buying shares of the target, hoping to profit as the target's share price moves toward the buyer's offer.
In the case of Dynegy and Enron, however, some takeover traders don't like the deal's odds - and, particularly, the considerable downside risk for Enron if the deal fails.
Uncertainties - including possible opposition from regulators and the potential for more woes at Enron that would allow Dynegy to back out of the deal - are keeping some traders on the sidelines.
"Another shoe may drop," said one takeover trader. "I can't imagine Dynegy got their head around all of this in just two weeks."
Just as some takeover traders view buying Enron too risky, going short Dynegy also is a dicey prospect because of the company's upside potential, whether the deal fails or not.
If the deal fails, for instance, Dynegy still has the right to buy certain Enron assets. On the other hand, if the deal goes ahead, it is expected to be accretive to earnings.
"We're taking a passive view," said Burnett. "I would not go out and buy either one in this kind of environment."
Although some takeover traders steered clear of the deal, some other investors appeared to like it.
Enron's stock price swapped hands recently at $9.40 a share, up 9% on volume of 38.2 million shares, up from averaged daily volume of 16.1 million shares.
Dynegy rose 15% to $44.47 on volume of 14.6 million, compared to average daily volume of 2.5 million. |
