Predicting Deflation?
My former employer Entrust Inc.’s stock is trading for $1.90 even though they have agreed to let Thoma Bravo buy them for $1.85 per share. What is going on that makes people pay $1.90 now to get $1.85 later? Do they expect deflation?
This is clearly a case where the market thinks it knows something that I don’t know. Perhaps investors hope that another suitor will come along and pay a higher price. I don’t know of any other interested company, but who knows.
This creates a reverse version of the usual takeover arbitrage. In the normal case where a stock trades below the takeover price, an investor who is confident that the takeover will go through buys stock to later sell it at the higher price.
In this case, the investor who is confident that the takeover will go through can short Entrust stock and later buy it back when the takeover happens. However, I’m not confident enough about what will happen to try any form of arbitrage.
This is clearly a case where the market thinks it knows something that I don’t know. Perhaps investors hope that another suitor will come along and pay a higher price. I don’t know of any other interested company, but who knows.
This creates a reverse version of the usual takeover arbitrage. In the normal case where a stock trades below the takeover price, an investor who is confident that the takeover will go through buys stock to later sell it at the higher price.
In this case, the investor who is confident that the takeover will go through can short Entrust stock and later buy it back when the takeover happens. However, I’m not confident enough about what will happen to try any form of arbitrage.
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