Morgans Hotel Group Co (MHGC)

[Enterprising Investor]

Two types of buyers:

1. Those just trying to earn the spread (most likely)

The deal is scheduled to close either in the third or fourth quarter. Arbs come in and buy up shares with the sole intent of earning the spread. The investor who captures the $.13 spread at today's pricing would earn a return somewhere between 15.7 percent (closing by 9/30/16) and 9.6 percent (closing by 12/31/16) on an annualized basis.

The price will climb slowly until the deal gets done.

I usually have at least one deal like this working at all times. I may buy back into MHGC.

2. A strategic buyer (less likely)

Another party could offer to buy one or both crown jewels or the entire company. However, another offer is not likely since the big shareholders all agreed to vote for the deal.

In any case, I still own June $2.50 calls. I bought the options after reading the story in the Post but before the deal was announced, obviously in anticipation of an offer higher than $2.25. I fully expect the calls to expire worthless.