Yesterday, it was reported that the FTC was going to investigate into potential anti-trust issues in the Google/Doubleclick deal. 

That puppy was for a whopping $3.1B, and triggered a plethora of deals, including Yahoo!/Right Media ($800M valuation), WPP/24/7 RealMedia for $680M and MSFT/aQuantive for $6B. 

But this begs the question, in a market that is strong-form efficient (all info be it public or private is reflected in stock), can the stock market give a quantifiable probablity that a deal won’t go through?

The Google/DCLK and YHOO/Right Media deals involve private firms, so the answer there is no.

But WPP/TFSM and MSFT/AQNT involve public companies so let’s examine this:

The latter, an all-cash deal, was for $66.50 per share, yet today, the stock is still only at $63.75, or 4.1% off the purchase price.  In terms of market cap, AQNT is at $5.03B though the price tag was $6B.  That would suggest one can make a 19.28% return… (note: don’t do this!  I am not an investment professional and I am sure there is something I am missing, hence why I’m posting this, to find out). 

It’s not like the difference is cash, since AQNT has $296M (according to Yahoo! Finance).  It also has $80M in debt, so a net cash of $216M.  Clearly, this does not explain why the market is hitherto valuing AQNT at $5.03B when MSFT is eager to give shareholders $6B.

Alternatively, it’s worth noting that TFSM is at $11.72 and the buyout price is for $11.75… not much room for arbitrage there.  Then again, the market cap is at $598M though the price WPP is to pay is $649M.   That’s off by 8%, or $51M, but TFSM has $62M in cash, and $15M in debt… so $47M net, so maybe it’s that?

Is that the transaction costs?  Maybe.  But who pays for that: buyer or seller.  I guess it depends.

Or, maybe the market is saying that there is a probablity that the deal won’t go through? 

I don’t - in all honesty - know why, but it’s interesting.  If someone knows, please chime in in the comments or email me at ash@mojosupreme.com.

UPDATE #1: From Howard Lindzon, investor and entrepreneur:

“Just merger arb guys betting on the deal and that’s the risk spread the big big money is taking.  In the AQNT deal the big money says that there is a bigger chance this deal could get changed.”

I’ll post as people send me their two cents.

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