UPDATE: Deal passes federal antitrust review.

Target: UST Inc. (UST) - formally United States Tobacco Company.

Buyer: Altria Group, Inc. (MO) - owns cigarette maker Philip Morris USA Inc.

Last Trade: $67.74 (was $65.34 on 10/14/2008 when I originally started tracking this deal)

Deal Price: $69.50

Deal closes: Early January 2009? (1/7/2009 via Morningstart.com article)

Back story:

“While Altria currently has fully committed financing to complete the transaction, Altria’s lenders advised that it would be preferable to close the transaction in 2009…”

“Altra agreed to raise the fee it would pay UST if the deal isn’t completed due to financing issues to $300 million from $200 million.” - wsj.com

Arbitrage opportunity:

Spread: $4.16/sh (as of 10/14/2008)

Potential ROI: 6.36%

On 100 shares, I could make $416 (less commission).

Risk:

  1. Capital financing in current market conditions is a toss up.
  2. However, the increase in termination fee from $200M to $300M is a good sign.

If I can allocate $6,534 is liquid cash that can be tied up for the next 2-3 months and can find an entry point around $65.50 or less, I will buy 100 shares.

Sources:
Morningstar.com article on delaying the deal