Want a Risk Free 14% Return?
DVW – Covad Communications (Amex) – (Closing Price – 0.88)
Every investor would like to make risk free investments, but risk and return have a direct relationship. Investments with the least risk usually have the least amount of return and vice versa.
However, right now you can get a fourteen percent return without much risk.
Covad Communications (DVW) announced on October 28 that it is being acquired by Platinum Equity for $1.02 a share. However, since the announcement Covad shares have traded as low as $0.77 and they are currently trading at $0.88.
If you buy at today’s closing price you are looking at a 14% return when the acquisition closes.
So why are the shares trading at such a discount to the acquistion price?
There is the risk that the deal will fall apart but I don’t think that is likely. At $1.02 the company is only worth 304 million dollars so financing shouldn’t be an issue. Also, the stock price was trading as low as $0.60 only a few months ago so it is unlikely that current investors will reject the deal.
The transaction is expected to close by the end of the 2008 second quarter which is only a half a year away.
I think buying shares of Covad Communications provides a safe investing opportunity with a pretty decent return.
Disclaimer: I have no position in DVW.
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nice find. I’ll be keeping an eye on this.
How can this be risk free if there is deal risk?There is 14% return potential but it certainly isnt risk free
Boris,
You are correct that the deal isn’t risk free. There is some risk or the stock wouldn’t be trading at a discount to the acquisition price. My webstite is still pretty new so I wanted to see how much traffic a snazy headline would generate. I think people who read the story understand the deal isn’t risk free. I even mention off the bat that you can get a fourteen percent return “without much risk”.
Here is a more in depth analysis of the DVW deal:
http://www.princeofwallstreet.com/2008/01/16/platinum-equitys-purchase-of-covad/
Thanks for sharing
I’d prefer reading in my native language, because my knowledge of your languange is no so well. But it was interesting! Look for some my links:
I’d prefer reading in my native language, because my knowledge of your languange is no so well.