Tails They Win in Travelzoo Flip

Travelzoo(TZOO - Cramer's Take - Stockpickr), the publicly traded Web site that searches the Internet for travel-related deals, just completed a very special deal for a group of hedge funds.

In the space of two weeks, the company locked in a minimum $14-a-share profit for the 26 hedge funds and other institutional investors that purchased 750,000 shares from Travelzoo in a Sept. 30 private placement.

In a corporate filing late Wednesday, the online travel firm registered the same shares for sale in the open market at a price of $54.67. The registration price represents a 37% improvement over the $40-a-share price these investors originally paid for the stock.

But with shares of Travelzoo, one of the hottest stocks of the year, most recently trading around $60, the gains for the investors should be even larger.

Of course, the $30 million placement -- a type of transaction known on Wall Street as public investment in private equity, or PIPE -- had all the earmarks of a sweet deal for investors. At the time it was announced, Travelzoo shares were selling for $58.07. So the PIPE investors purchased their shares at a 31% discount to the going price in the open market.

However it is sliced, the private investors are coming out far ahead. The deal is a good example of why the $14 billion a year PIPEs market is becoming increasingly popular with hedge funds eager to bolster their returns.

The biggest winner is Alexandra Investment Management, a New York hedge fund with nearly $2 billion in assets, which bought 200,000 shares in the PIPE offering. An attorney for Alexandra declined to comment on the deal.

Other participating hedge funds include Staro Asset Management, a $2 billion Wisconsin hedge fund that purchased 75,000 shares through an affiliated investment entity called SF Capital Partners, and Dallas-based Gryphon Partners, which bought 50,000 shares. Many investors bought blocks of stock of 10,000 shares or less.