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Who Wants Free Money with Inhibitex?

February 02, 2012 | About:
Inhibitex (INHX) is being bought out by Bristol-Myers Squibb (BMY) for $26 per share. You can elect to tender your shares now, to be effective on February 10. As I currently write this, shares trade at $25.52. That’s a 1.9% spread and you’ll be paid soon after the tender date. If you bought today and tender your shares, getting nearly 2% for about a two week holding period and extremely low risk is a pretty good deal. That’s a better way to make money than to follow these 2011 predictions.

This is an example where smaller investors who aren’t going to move the market can get make a good return with low risk. If you find a few of these each year, you’ll be in good shape. If you’re thinking about buying in and tendering your shares, read the filing here. There are a few things you need to know: The tender date may be extended, the percentage necessary to be tendered may not be met, the deal could fall apart due to the government or a legal ruling, and some negative info on its Hepatitis C drug could come out. I don’t think any of that will happen over the next ten days, but you should at least be aware of the risk.

I bought into Inhibitex a few weeks ago because I thought the spread was too great compared to the risk of the deal not going through. The spread at the time of my purchase was more than 7%. Considering the stock has traded between $2.15 and the $26 offer price, there is a good reason that there is a decent size spread. Plus, the company is dependent on one drug, so any bad news associated with it would be a serious problem. That’s why I made it a small position.

At this point, though, with eight days to go, that little bit of risk is now very close to zero. Don’t forget to factor in the short-term capital gains rate and any tender fees your custodian may charge.

Learn more at Intellectual Honesty.

Disclosure: Long INHX

About the author:

Steven Kiel
Steven Kiel is the president and chief investment officer for Arquitos Capital Management, a Virginia-based investment management firm. He is a graduate of George Mason School of Law and a captain in the Army Reserves. He manages two spoke funds, The Freedom Fund, a value-oriented portfolio, and The Hayek Fund, a portfolio dedicated to free market principles. He can be contacted at steven.kiel@arquitos.com or through the firm's website at www.arquitos.com.

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Rating: 3.9/5 (11 votes)

Comments

aashiq
Aashiq - 2 years ago


Steven,

I've read the TO and other 13 and 14Ds that have been proliferating on the SEC website. There is a lawsuit (not class action) and a request for an injunction against this tender - which will have a preliminary hearing on Monday, Feb 6th. What are your thoughts on the requested injunction?

Please leave your comment:


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