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$OUTDreceiveshigherbidfromKSE,ballinIntermedia's
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Outdoor(OUTD)

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Aquickupdate:aftermarketclosetoday,OutdoorannouncedthattheyhadreceivedahigherbidfromKSE.The
newbidisfor$9.35andtopsIntermediasbidof$9.15.Sofar,thesituationisplayingoutjustlikeIwroteupin
mylastpost.TheballisinIntermediascourtnow.Ithinktheymakeabidfor$9.759.85pershareaftermarket
close tomorrow (maybe Monday morning). Id be pleasantly surprised if KSE made another bid over that I
wouldntcompletelyruleitoutandIthinkIntermediawouldprobablycomeoverthetopofthatbidaswell,butI
thinkbyMondayIntermediaisthewinningbidderandshareholdersarelookingatapayoutjustunderthe$10
range.Anythingoverthatispuregravy.

ADeadlyDistance
L.T.Ryan
New

DisclosureLongOUTD
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Thecontentcontainedinthisblogrepresentsonlytheopinionsofitsauthor(s).Imayholdlongorshortpositions
insecuritiesmentionedintheblog.Innowayshouldanythingonthiswebsitebeconsideredinvestmentadvice
andshouldneverbereliedoninmakinganinvestmentdecision.Readthatlastlineagain.Also,thisblogisnota
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author(s).
Relatedposts:
1.$OUTDproxyrevealshigherbidpotential
2.$OUTDdeterminesKroenkeofferissuperior,Intermediatoppingbidtocome?
3.Intermediarebidsfor$OUTDmoretocome?
4.$OUTDOutdoorChannel:abiddingwarinthemaking?
5.$OUTDIntermediawalksawayisthereanyvalueleft?

PostedbyWhopperat11:22pm

10Responsesto$OUTDreceiveshigherbidfromKSE,ballinIntermediascourt
1. NateTobiksays:
May2,2013at11:33pm

AmIrightinreadingthatyouinitiallygotinterestedat$8.75?Sothenewbidis6.8%higherthanyourinitialposition?
Areyouleveringyourselfupforthesethingsorsomething?Istheideathatyoumake10%inamonthorsomethingand
keeprollingit?
Iaskbecauseitseemsyourinvestmentstylehasreallyshifted.Youwentfromdeepvaluecompanieswithamarginof
safetytobuyingmergerarbdealsfor3%spreads.ImjustconfusedatthechangeofdirectionandImthinkingmaybeI

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missedsomethingwheresomehowthesetinydealsareworthit.
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Greggsays:
May3,2013at9:23am

NateItsnotnecessarytoleveryourselfup.IdontthinkWhopperonlydealsindeepvaluecompanies.I
thinkhisphilosophyistolookattherisk/rewardscenario.Inthiscasethedownsidewasbasicallyzerowhile
theupsidewasthoughttobeaminimumof10%(couldbemore).Thatsanicereturninacoupleofmonths.
Deepvaluecompaniesaregreat,buttheycanalsotakealongtimetoplayout.Sowhenyouhaveamerger
arbopportunitylikeOUTDwhichhasagreatrisk/rewardandyouknowsomethinghastohappenbyacertain
dateitseemslikeareasonablebet.Inthemeantimechancesarethosedeepvalueplaysarestillgoingtobe
deepvalueplaysandhecanbuybackinaftertheOUTDbiddingplaysout.
Reply

NateTobiksays:
May3,2013at10:30am

I understand your point, but I disagree about the risk. In most cases these deals go through
withoutaproblem,buttheydontalways,andwhenadealfallsapartthelossescouldeatanyand
allgains.
For example imagine playing the TNT Express arb, they were being purchased by UPS, so no
problemswithfinancing,thespreadwastight.Thenthebidfailedandthestockdropped30%+,
thatsalotofgainslostrightaway.Maybeatrailingstopwouldhavehelped,Imnotsure.
I agree that deep value ideas are different. Im just saying it seems that as those ideas dry up
people are stretching for tiny gains in areas that dont appear risky when in fact they might
actuallyhavealotofrisk.
Reply

Greggsays:
May3,2013at12:31pm

True. I wouldnt get involved in most merger arbs. In this case Whopper and other
authorsIvereadlaidoutanextremelystrongcaseastowhythebidfromKSEwas
unlikelytobewithdrawnandwhyInterMediawaslikelytobidhigher.Icertainlydidnt
makeitalargepartofmyportfoliopartlybecauseIveneverbeeninvolvedinamerger
arbbefore.
TheothermergerarbsWhopperseemstobeintoaretheManagementBuyouts.Ido
thinktheyareinteresting,buthaventinvestedinanyofthoseyet.Mymainconcernis
while I believe he is correct in pointing out that MBOs usually indicate that the
companyisundervaluedoftentheseownershavecontrollingstakesinthecompany.
Even though the shareholders are probably getting ripped off it can be very hard to
fightit(ex.AUTO).
Reply

NateTobiksays:
May3,2013at10:31am

IguesstheessenceofmypointisitseemedstrangethatWhopperwentfromassetinvestingand
cheap companies to essentially speculation on take out bids. Thelastnumberofpostshaveall
beenxcompanyhasamergeragreementat$9.75,Ithinkonewillcomeinat$10
Unless hes got a phone tapped or something there is no way this can be anything other than
speculation.Imnotsayingitsbadorwrong,justpointingitout.
Reply

Jeremysays:
May3,2013at10:38am

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Nate,Ithinkyourelookingatthisthewrongway.
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maybeImissedsomethingwheresomehowthesetinydealsareworthit.
11May1311May13
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1)IRR
IftheOUTDdealclosesat$9.75,yourelookingata11.4%return.Assumingittakes3months(fromposition
entry)forthedealtocloseatthatprice,yourelookingata>45%annualizedreturn.Evenassumingittakes4
months, thats 34% annualized. If it were to close faster, or get a higher bid, or you were to sell when you
thinkthefinalbidisin,theannualizedreturnisevenhigher.
2)Completelyasymmetricriskreward.
Youre not exposed to ANY market fluctuations in this type of investment. Of course, that means that you
missoutonanymovestotheupside,butyourealsoprotectedfroma20%correctioninthemarket.Itslike
holding whatever percentage of portfolio you decide to allocate to it in cash except you have significant
optionalityvalue.
Insummary,atthecurrenttradingprice($10),youcouldexitwitha14%returninundertwomonths(or84%
annualized).Given that theres very little risk/downside potential, Ill take that sort of investment any day.
Obviously,thisoneworkedoutquitewell,butevenifitsonlya34%returninamonth,thatstillworksoutto
>3040%annualized.Withlittletonodownsideriskinvolved,well,thatmakesitevenbetter.
Disclosure:LongOUTD
Reply

AlphaVulturesays:
May3,2013at1:41pm

You are very mistaken about your exposure to market risks: a merger arb strategy is not unlike
selling far out of the money puts on the stock market. If things go up, sideways or a bit down
everythingisfine:butwhenthemarketcrashesyouwillhaveaverybigexposuretoo.Becauseat
exactlythistimethebuyermightnotbeabletogetfinancinganymore,orhemightdecidethathe
needstopreservecash,orhethinksthetargetcompanyisunabletogeneratethekindofcash
flowsthatwereprojectedinoptimistictimes.
Andwhenadealfallsinaenvironmentlikethatyouwillnotonlylosethepremiumthatthebuying
companywasbidding,butyoualsogetthedeclinethattheoverallstockmarketisexperiencing.
Mergerarbissellinginsurance.Makesurethatyouknowwhatkindofinsuranceyouareexactly
selling!
Reply

2. booyahsays:
May3,2013at12:23am

wellplayed!!theIRRontheselittledealsisawesome.Igenerallyammoreexcitedaboutpotentialdoublesorbetterbut
there is always a place in any portfolio imo for these singles and doubles and awesome to see you writing about a
diversesetofinvestmentopportunities.
Reply

3. Legendsays:
May3,2013at10:26am

While I occasionally involve myself in merger arbitrage situations, I dont usually involve myself in potential bidding
wars.Youvebeenspotononthisone.goodcall.
Reply

4. PaulTennsays:
May8,2013at7:52pm

OutdoorChannelAgreestoIncreaseto$10.25PerShareinTransactionWithKroenkeSports&Entertainment
http://finance.yahoo.com/news/outdoorchannelagreesincrease10231722375.html

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