Friday, November 6, 2009

Buffett Offers Possible 22% Profit to Arbitrage[u]rs on Burlington (BRK.A; BNI)

The headline didn't have the "u" in arb.
I added it because that word is one of the few opportunities I get to sound semi-sophisticated.
[he also likes "tranche" and "pari passu". "force majeure", not so much -ed]
From Bloomberg:
Warren Buffett is giving arbitrage traders the chance to capture annualized earnings of 22 percent on his bid for Burlington Northern Santa Fe Corp.

Berkshire Hathaway Inc. offered $100 a share for the largest U.S. railroad on Nov. 3 in a deal the Omaha, Nebraska- based insurance and investment company said would probably close during the first quarter. Based on that schedule and Burlington’s closing price of $96.98 yesterday, the acquisition offers an annualized return of 8 percent to 22 percent.

Shares of takeover targets rise to the offer price as the closing of the deal nears, with the gap widening when there’s doubt it will be completed. Berkshire is already Burlington’s biggest shareholder. Potential profits on the bid exceed the 0.08 percent annualized return during the past week from the 100 largest taxable U.S. money-market funds, according to data compiled by Westborough, Massachusetts-based Crane Data LLC.

“It’s a good opportunity to put some cash to work and at the end to get some Berkshire shares as part of the transaction,” Anne Gudefin, whose $15.1 billion Mutual Global Discovery Fund holds Berkshire stock and beat 99 percent of peers the past five years, said in an interview at a Franklin Templeton Investments conference in Vienna yesterday....MORE

Bet on the deal going through despite this additional headline at Bloomberg: