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( This discussion involves a form of investing called Risk Arbitrage (aka merger arbitrage). This involves buying the spread while calculating the odds that the transaction will be completed. If you take a look at Buffett's recent purchase of Dow Jones , it is a classical risk arbitrage situation, he bought DJ because he betted that Murdoch will eventually succeed in owning DJ >


as you may know, I have 30% of my real money portfolio on betting that Tribune ESOP will be completed and be taken private at the end of the year. The stock has been somewhat volatile, and it is now below my cost base of around $28.50+. The spread betweenthe current price of 27.30+ and the going private price of $34 is around 24%+

The key reasons for this wide spread is that

a. The company cannot raise the money to be bought out

b. The company cannot survive even if it gets financing because of the decling cash flows and heavy debt load

c. Regulators may block the deal.

d. Sam Zell's stake in this venture is only $50m + a 225m loan to TRB and an option to buy a controlling stake at around $400m later.

e. Lastly, nothing prevents Sam Zell from negotiating the going private price downwards.

There are my response for a. to e.

a. The company has stated that financing is secure. It has already borrowed 8bn and needs 4.2 more to go. (the 8Bn already secured, 4bn is refinancing).

b. May be a real concern. But Since I am executing an merger arbitrage deal, it is immaterial. It intends to sell the Chicago Cubs & the Wrigley Stadium, I think the price is around 700m to 1bn. This will assure the banks that it can muster cash to pay off the loan + vig, at least in the short term.

c. This may be true. But since the regulators has already approved DJ & News Corp deal with no issues, I doubt of TRB will have problems divesting TVs stations or newspaper in order to get approval.

d & e. Sam Zell recently paid a visit to LA Times, he spoke about his vision for the newspaper and some of his direct comments on how the newspaper could be made better. To me, this is the clearest indication that Mr. Zell intends to buy TRB on the cheap, fix it and run it like an owner, and perhaps like his past investments, sell it off.

Based on the above, I am inclined to add to my already full position in TRB. If TRB moves 15% or more lower than my cost base without any new information, I will sell off my investment in KO and WWY to buy more TRB.

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