arbitrage, page-16

fwiw...this is what I posted a few weeks ago. I think the interesting thing is the possibility, even though perhaps unlikely, of a last minute counter offer....the situation for TLW I think would be that to win, they might have to make an unconditional offer of their own...there are still lots of permutations...

"Hi 618

I have given this process a fair amount of thought and have kept a portion of my holding deliberately because I can see that investment banks do not accumulate significant stakes in a target like this at a premium to the cash offer price, just to get access to the TLW scrip component. The accumulation has been in a company where the realisation of any gain is deferred and conditional on a favourable vote, increased offer, or counterbid. In the meantime, the investment is effectively locked in because dumping their holdings would virtually certainly trigger a loss. If they like TLW so much, why wouldn't they just buy TLW on market in the UK. The cash alternative would realise a loss on their entry price even before holding costs.

The one thing that I can see would make some sense would be that they wish to go long the oil price, but keep a put option. This structure does have some of that character about it ie. they have the upside from a spike in the POO cause TLW may increase in price, but have a slightly "out of the money" put option through the cash alternative.

The only thing wrong with this theory is that the position could fail to be realised if the vote is "no". That is something that none of them have effective control over. A no vote could lead to significant deterioration in the price of HDR in the short term and there would be even less liquidity in their investment. Therefore, I can't see that these sophisticated investors would be in there for anything else but a higher/sweetened offer or counterbid (seems unlikely, but still possible).

The latter proposition of a counterbid could still be possible because IMHO, a bidder would be foolish to show their hand well in advance of the vote. If they want success, I expect a bidder could get it with a well timed $2.25 cash bid, say 2 days before the vote. There could be a stampede of acceptances from the investment banks that would make TLW's job of proposing a viable counterbid very difficult with only 4.25% of the stock and its hands tied on the amount it could bid in the market. Could it even be the case that TLW would be prevented (by takeover code) from anything but a full cash offer at a superior price if they wanted to compete.

I think the situation is getting very interesting and I'm even thinking of buying more myself. Interested in others' comments."

regards
DF