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Peridot Capital Management LLC

Registered Investment Advisor
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Peridot Capital Management LLC

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Playing the Neiman Marcus Arbitrage

May 2, 2005 Chad Brand, Peridot Capital Management LLC
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Shares of Neiman Marcus are trading down $5 this morning, to $93.25, on news that the company is being purchased for $100 in cash. Many investors were looking for more money out of a buyout. Existing shareholders may be upset with the price, but today's drop gives others a great chance to play an arbitrage trade.

The deal is for cash and is expected to close by November 1st, so we're looking at a 6-month time frame. The share price of $93.25 trades at a 7.2% discount to the buyout price, plus there will a 15-cent dividend payment in August. Buying the stock and holding until closing will net investors nearly a 15% annualized return with very little, if any, risk.

Side notes

(5:35pm): Sirius Satellite CEO Mel Karmazin on CNBC is quoted as saying "We don't think of XM Satellite Radio as our competitor."

Really? Perhaps that explains why they are so far behind XM in terms of subscribers, cost structure, and technology.

(2:50pm): FBR's food and beverage analyst just said on CNBC that he would not recommend selling Starbucks (SBUX) stock at its current price of $49.67 per share. When asked what his target price was, he said $50. I can't help but laugh outloud when I hear things like this. Do people really take comments like these seriously?

In retail stores
← Despite Headwinds, Record Short Interest Suggests Future StrengthMorgan Stanley's Purcell To Stay, For Now →

Peridot Capital Management LLC is a registered investment advisor in the states of Maryland, Pennsylvania, and Washington. The firm may not transact business in states where it is not registered or exempted from registration. In most states, the firm is exempt from registration if it has fewer than six clients who are residents of that state. As a result, Peridot Capital Management LLC is free to provide services to residents of every state and applies for registration as required. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.

The content published on our blog represents the opinions of Mr. Brand and he and/or his clients may hold positions in securities discussed. Such positions will be disclosed at the time of publication, although subsequent changes to those positions will be made without notification. The information contained in blog posts is believed to be accurate when published, however, mistakes could be made. As a result, do not rely on the content exclusively for your investment due diligence. The commentaries published do not constitute investment advice, as readers’ personal investment goals and risk tolerances will dictate which investments are appropriate for them. Our blog is meant to be one of many sources for readers to conduct their own research into specific investments. Consult an investment professional before acting solely on information found on this site. If you do not have an investment professional to work with, you may contact Peridot Capital Management LLC directly.