Hmm, I think you guys got arbitraged today. Let's work the example based on the closing prices:
HBOC 27 1/4
IMNT 21 7/16
1 share of IMNT will get you .84 shares of HBOC.
27.25 x 0.84=22.89
22.89-21.4375=1.4525
1.4525/21.4375=6.87%
So, I short 84 shares of HBOC and go long 100 shares of IMNT, and make a $145.25. When the deal closes, I deliver the 84 shares of HBOC I get in return for my long IMNT to cover the short. The deal is set to close in the fourth quarter, so we're looking at a maximum of 5 months. 6.87% in 5 months is not a bad return when you consider that it's locked in, and you're only risk is that the deal will not be consummated. Further, this 6.87% return is calculated on the closing prices. This was after the arbitrageurs had done their work. When IMNT came off the halt, it opened at 20, and HBOC was 29, so the so called arbitrage premium was closer to 15%.
If the deal fails, the play will be to short IMNT and go long HBOC as these same arbitrageurs
This only explains todays action. I must say I am kicking myself for not buying WCOM in the low 30s when the arbitrageurs did their thing after the MCIC offer was announced.
Barb |
