Just bought 1000 shares of Image Entertainment (DISK) at $1.10/share as a speculative arbitrage opportunity.
As a speculative play, the details about their business isn't too important to me since I'm only attempting to capitalize on the difference in the stock price now compared to the buyout price. What do I mean?
According to a definitive merger agreement in January:
On November 17, 2008, our board of directors approved, and on November 20, 2008, we entered into, a merger agreement providing for the acquisition of Image by Nyx Acquisitions, Inc., a Delaware corporation, or Nyx. If the merger is completed, you will be entitled to receive $2.75 per share in cash, without interest, for all of the shares of our common stock that you own at the time of the merger.
What is important to me are the chances of this merger actually happening.
The current stock price would indicate that most investors probably don't think this merger will ever come to fruition, and there's good reason for their skepticism. Nyx Acquisitions, Inc. has already extended the closing date of the merger a few times and investors are worried that Nyx won't be able to swing the financing or that they may back out of the deal.
But, I think differently.
With each extension of the merger closing date, Nyx is basically required to pay an ever-increasing, and non-refundable, extension cost to Image referred to as a "business interruption fee". After news today of another reported extension, the amount of extension money Nyx has paid to Image now totals $4 million.
I bought DISK because I believe NYX wouldn't just walk away from such a large deposit if they weren't truly intending to buyout Image. It's difficult finding financing at this time, but not impossible. The merger date may be postponed again, but I think that that it's a done deal sometime in the near future.
Of course it's all speculative, but when it happens, I should more than double my investment in this arbitrage opportunity. If it doesn't happen, Image Entertainment, Inc. would be "sitting pretty" with a free cash infusion of at least $4 million.
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