Shorting DJ

[Karmic]

I'd like to discuss taking a short position in Dow Jones DJ. With Rupert Murdoch's offer the share price has jumped almost 60% however the Bancroft family, 52% combined shareholders, have refused to consider the deal at that price. Furthermore, the Ottoway family, 6.2% shareholders, have refused to sell to Murdoch at any price. Nobody has stepped in to make a similar offer yet, however, one small shareholder has filed suit against DJ for failing to even consider Murdoch's offer. Additionally, although he stated he would not bid on it, Buffet said he believes DJ is worth that much if someone were to attempt to buy it.

Risk: Potential for a similar or higher offer accepted, most likely in the $60-$65 range. This would give you a loss of $500-$1000 per contract.

Potential Gain: Should the offer be rejected and no other offers come in it is most likely that the share price will fall to its previous levels giving you a maximum gain of $1500-$2000 per contract.

Due to the majority stockholders outright disdain for Murdoch I believe this deal is more likely to fall through than to go through or for anyone else to offer that much. This could be similar to Brunson's "bid" for the WPT sending the price soaring then crashing in short order.

This looks to me to be a clear spot where you have higher upside gains than downside losses, and you are more likely to realize those gains than to lose. Anyone have a counter argument as to why this would be a bad idea?

[NajdorfDefense]

KKR buys it.
Blackstone buys it.
Apollo buys it.
A strategic buyer buys it.
Carlyle buys it.
TPG buys it.
Carlos Slim buys it.

[Korch]

I kind of agree. You're certainly not the only one on the street with your eyes on that stock right now. I would think the individual would have a better comparative advantage looking for plays that fall off Wall St's radar.

[Karmic]

[ QUOTE ]
KKR buys it.
Blackstone buys it.
Apollo buys it.
A strategic buyer buys it.
Carlyle buys it.
TPG buys it.
Carlos Slim buys it.

[/ QUOTE ]

have any of these groups shown interest? If nobody else has shown interest and DJ isn't shopping for offers I don't see why it would be more likely that they come in here than any other company.

Todays news has Ad revenue falling for DJ but that is a non-factor in the above considerations. Volume for out of the money calls and puts for June and September was high again today and almost evenly balanced so there are a lot of bets on both sides.

[Karmic]

Looking good today (Wed) DJ is down about 5% with 2 hours left. I could even get out for a small profit if I start to worry and it hasn't dropped far enough to prevent new positions from being profitable.

[Karmic]

Update, with the announcement that members of the Bancroft family will be meeting about the offer I believe this position has become too risky to hold and have closed it for a small profit. I will continue to watch the offer closely and see if there is another entry point in either direction.

[DesertCat]

[ QUOTE ]
Additionally, although he stated he would not bid on it, Buffet said he believes DJ is worth that much if someone were to attempt to buy it.

[/ QUOTE ]

[ QUOTE ]

NEW YORK (Reuters) -- Warren Buffett said Monday it's "very, very unlikely" he would bid for Dow Jones & Co. as a personal investment, though he said the publisher of the Wall Street Journal has an appeal beyond economics. Buffett, chairman of Berkshire Hathaway, also said his company could not bid for Dow Jones because an offer already on the table by News Corp. Chairman Rupert Murdoch at $5 billion, or $60 a share, is too high.

....
Buying Dow Jones would be well within his reach, but last March he said in his annual letter to Berkshire Hathaway shareholders that the newspaper business is shaping up for a bleak future.

"Aspiring press lords should be careful," he warned amid a spate of interest in newspapers such as Tribune Co.'s Los Angeles Times. "Fixed costs are high in the newspaper business, and that's bad news when unit volume heads south."

[/ QUOTE ]

[Jcrew]

Are you considering just put options or an option strangle?

[Karmic]

I've exited the position but if I were to re-enter a strangle would seem like a good idea, but, the volatility of the options is known and already priced into the market. A Dec $55 call is trading around $5 and a $45 put is trading around $2.50. Shorter term options are trading about the same. To make any money you'd need it to drop back to around $35 or Murdoch would have to increase the bid to around $65.

I'm still very interested to see how this shakes out and I still believe the deal will not go through, but, I'm less confident than I was a week ago.

[Jcrew]

Any resources that show history of option prices similar to price graphs for stocks?