Intelligent Investor had the following to sayAlinta Energy Group...

Intelligent Investor had the following to say

Alinta Energy Group (AEJ)
Hi, Is an arbitrage opportunity emerging in Alinta Energy ? The price was chased up to 9.9 cents over the last few days and now buyers have all but disappeared and the sellers are dropping stock. I can't find any reason in the published news that would support a reason for this, perhaps it's investor nerves. It would appear a better than 5% return is on the table for a 6 week investment (more likely a punt !)...dependent of course on the scheme being approved. So then, is this an opportunity unfolding or a trap laid out for the foolish ?

Stephen M

18/02/2011, Gareth Brown:
I should point out that I own Alinta Energy shares. I bought a tiny amount in early 2010 on the pure speculation that it would buy me a ticket at any interesting recapitalisation deal (I should add that I bought well before the Value Fund, and hadn�t discussed the matter with Steve Johnson). I bought more in October when the arbitrage first developed, on much the same reasoning Steve outlined in Alinta Energy makes it two from two.
Our team discussed writing up the Alinta Energy arbitrage as an Idea�s Lab, but we decided it was too complex and risky. If this deal falls over, the downside could quite easily be 100%. This is a riskier arbitrage than buying an operating company under takeover that would retain some value if a deal falls over. So we opted to skip it.
As for buying today, I can�t provide individual advice. Personally, when undertaking takeover arbitrage I demand a high annualised return and also a 10%+ absolute return, after all, if the deal falls through the losses will be absolute rather than annualised. I think this deal will probably go through as is (10 cents per security plus the very small Redbank stub), but it could fall through. If the deal falls through, the lenders might come back with a sweetened offer, or the whole thing could collapse and wipe out of my investment (or, as you accurately put it, punt). Generally speaking, we think it�s too risky for potential profit on offer, which is why it�s not an Idea�s Lab article. It's a little less risky now than it was late last year (the deal looks more likely to go through), but the upside is also much lower.