Merger arbitrage is an attempt to generate nearly riskless profits. It's a beautiful thing, when it works.
One example would be Berkshire Hathaway's
Of course, deals fall apart. Just this week, BHP Billiton
Like Motley Fool Income Investor pick ONEOK, Buckeye GP Holdings
During the market meltdown, these partnerships sold off severely, despite their dependable distributions and recession-resistant characteristics. A private equity-backed group called BGH GP Holdings saw the opportunity to pick up the remaining 38% of Buckeye GP that it didn't already own, and made a $17 tender offer. On Nov. 17, BGH kicked up the offer by two shiny quarters, but the general partner still recommended that unitholders reject the "inadequate" offer. BGH dropped its bid last Friday as a result.
Buckeye GP now changes hands for less than $14 per unit, which values the company at an extremely low multiple of operating cash flow. Buckeye Partners has paid 87 consecutive quarterly distributions, so those cash flows do not appear fleeting. From the Marcellus shale to ethanol pipelines, Buckeye appears to have lots of interesting growth opportunities, and the general partner's debt load, reasonable at 52% of total capitalization, shouldn't stand in the way.
Interested Fools will need to dig much deeper, but this busted pipeline deal could pump up your portfolio.
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