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Strategies & Market Trends : The Rational Analyst -- Ignore unavailable to you. Want to Upgrade?

To: ftth who wrote (461)	3/17/1998 2:49:00 AM
From: HeyRainier	Respond to of 1720

[ Arbitrage Opportunity: XO and AT ] It appears that a small arbitrage opportunity has arrived with the materialization of the agreement for Alltel (AT) to acquire 360 Communications (XO). The agreement calls for 360 shareholders to receive 0.74 shares of Alltel for each 360 share, putting the value of XO at $33.21 per share(Alltel closed at $44 7/8). It looks like that at the close of Monday's trading, XO closed at $31.25, or about 5.9% below its acquisition price. As long as this discrepancy exists, there appears to be an opportunity to be exploited. If one shorts Alltel at $44 7/8, and simultaneously goes long XO at $31.25, as long as the terms of the acquisition remain intact, one should be able to get a fair return on the arbitrage equivalent to the discrepancy, minus commissions. So under the agreement, either XO trades up to $33.21 (0.74 * 44.875), or Alltel trades down to $42.23 (31.25 / 0.74), or some permutation in between. That means a long position in XO, combined with a short position in AT will produce a guaranteed profit when the discrepancy vanishes, and for as long as the terms of exchange exist.