Playing the Neiman Marcus Arbitrage

Shares of Neiman Marcus are trading down $5 this morning, to $93.25, on news that the company is being purchased for $100 in cash. Many investors were looking for more money out of a buyout. Existing shareholders may be upset with the price, but today’s drop gives others a great chance to play an arbitrage trade.

The deal is for cash and is expected to close by November 1st, so we’re looking at a 6-month time frame. The share price of $93.25 trades at a 7.2% discount to the buyout price, plus there will a 15-cent dividend payment in August. Buying the stock and holding until closing will net investors nearly a 15% annualized return with very little, if any, risk.

Side notes:


Sirius Satellite CEO Mel Karmazin on CNBC is quoted as saying “We don’t think of XM Satellite Radio as our competitor.”

Really? Perhaps that explains why they are so far behind XM in terms of subscribers, cost structure, and technology.


FBR’s food and beverage analyst just said on CNBC that he would not recommend selling Starbucks (SBUX) stock at its current price of $49.67 per share. When asked what his target price was, he said $50. I can’t help but laugh outloud when I hear things like this. Do people really take comments like these seriously?