Covad Communications: Risk Free Return Update

By: ispeculatornew
Date posted: 03.03.2008 (8:28 pm) | Write a Comment  (1 Comment)

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DVW – Covad Communications (Amex) – (Closing Price – $0.9376) 

A few months ago I wrote a post about a relatively risk free 14% return you could get in Covad Communications. Covad Communications is being acquired by Platinum Equity in an all cash deal at $1.02 a share and the stock price of Covad Communications was only $0.88 at the time.

The deal is getting closer to completion and the stock price of Covad Communications is still trading at an 8% discount to the acquisition price (Covad ended the day at 0.9376). There wasn’t much risk when I originally posted about the deal and there is even less risk now. The acquisition has cleared an antitrust hurdle and stockholders have approved the deal.

This deal represents an almost risk free investment with a pretty good return. The deal is expected to close in the second quarter of this year so the current return would actually be closer to 16% on an annualized basis (depending on when the deal actually closes). That’s a lot better than you are going to get in savings account, money market account, or CD.

The only way the deal would fall through is if the acquisition didn’t get approval of the FCC and state regulators or if Platinum Equity backed out. This deal is so small that these things were never really issues.

Amazingly, shortly after my original post the stock price of Covad Communications was sold off by stupid investors and even reached as low at $0.73. I don’t see that happening again and the stock price should rise from here on out as the deal gets closer to completion.

If you are a conservative investor who is weary about the current market you should check into this deal.

Disclaimer: I have no position in DVW.

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1 Comment

  1. […] Mar 2008 – Check out this update from Intelligent Speculator on the Covad Communications buyout arbitrage opportunity.  The Prince blogged about Covad recently and attempted to handicap the […]

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