Arbs Lay Off Knight-Ridder
Is Knight Ridder (KRI) a good merger arbitrage play? Several traders at hedge funds doubt the deal will materialize and say they're in no hurry to take a bet.
Shares of the newspaper publisher rose 1% to $60.93 Thursday after The Wall Street Journal reported that three private equity firms, Blackstone Group, Providence Equity Partners and Kohlberg Kravis Roberts, were considering a joint bid for the company.
The muted reaction partly reflects Knight-Ridder's 15% run since late October, when several large shareholders started agitating for a sale of the company. But the current price is 13% below the 52-week high of just below $70, hit in early March.
For now, merger arbitragers, who bet on takeovers, aren't embracing the stock, which presumably would be taken out for a price above the current level."I don't like to play pre-deals. It's too risky," says Nancy Havens, founder of merger arbitrage hedge fund Havens Advisors. "If the market goes down, you go down twice as much. We [previously] did it with a fantastic franchise, Gatorade. But here, I would need to see bidders really stepping in." Haven says she has not ruled out buying the stock, but not until the stories are confirmed. "I think there is accuracy in the rumor. But it's just rumors." All that is known for sure, another hedge fund manager says, is that Knight Ridder announced last month that it was exploring the possibility of selling the company and that it had hired Goldman Sachs as its adviser. Even after that news, which followed the shareholder comments, the stock rose just 23 cents to $63.10. And since then, it has moved downward. "I am not buying the stock," this manager says. "We think a deal gets done, but it could take a long time to unfold," says William Drewry, a Credit Suisse First Boston analyst in a research report, who is neutral on the stock.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV