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Stocks B / Berkshire Hathaway


Subject:  Re: OT: arbitrage Date:  5/20/2001  8:27 PM
Author:  PhoolishPhilip Number:  48000 of 236253

I believe that azurefox is basing his estimated rate of return on the time it would take to realize income from a purchase of RAL at its present price of $30.67 until the Nestle deal closes at $33.50. An investor can expect to earn 9.23% based on the present price of $30.67 ($2.83/$30.67). Your annualized return, however, depends on the time it takes for the deal to close. If the deal closes by the end of the year, as Nestle says it will, then one can expect to earn an annualized return of ~19%. If the deal takes longer to close, then your rate of return diminishes. You also need to factor taxes into the equation to get your real rate of return. Oh yeah, the danger is that the deal blows up and your stuck holding shares of RAL at the pre-deal price of ~$24 (ouch!).
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