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Finerman's Find: M&A Opportunity

Monday, 24 May 2010 | 5:41 PM ET

Karen Finerman is closely watching the M&A activity in the market. And she’s found a few opportunities.

Specifically Finerman is looking at arbitrage opportunities.

Uh, oh – that sounds confusing.

It’s actually quite simple.

In this case Finerman is looking at companies whose share prices appear overly discounted relative to an acquisition offer that’s on the table.

What?

Here’s an easy example.

Finerman's Fine Print
A look at the stocks to buy on the bid.

Let’s say, 3 months ago 123 Inc. was trading at $5/share. Then LeeBee Corp. made an offer, to acquire the company for $10/share – a big premium.

Here it is 3 months later, and 123 Inc. is only trading at $8. It’s discounted (by $2) on speculation the deal could fall apart and the stock could plunge. That’s called the spread.

Our example is a little exaggerated but you get the idea. And that idea is the foundation for the trades that follow:

According to Finerman a handful of companies with deals on the table are too sharply discounted – or have spreads that are larger than they should be.

Here’s what she’s looking at:

Target Company Acquirer Spread
Alcon Novartis $0.32
Airgas Air Products & Chem $0.21
Smith Int'l Schlumberger $1.85
General Growth Brookfield $2.25
Source: MKM As of 5/21

What's the trade?

Of those listed above, my favorite arb play is Alcon , says Karen Finerman. Novartis is an A+ quality buyer.

Also, I also think the Smith deal has a high probability of going through and I’m playing upside in Airgas through calls.

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