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Prisa-Liberty Merger Offers `High-Charged' Potential for Returns, T2 Says

By Nikolaj Gammeltoft - 2010-10-14T00:34:12Z

Liberty Acquisition Holdings Corp. and Promotora de Informaciones SA, Spain’s largest media company, are attractive investments as the companies prepare to merge, according to hedge fund T2 Partners LLC.

Investors should buy stock in Prisa, as the Madrid-based company is known, and stocks or warrants in Liberty, a “blank check company” created for the purpose of buying or merging with a business, because the three instruments will gain if the two companies merge, T2 co-founder Glenn Tongue said.

“It is a classic special situation,” said T2 Partners co- founder Whitney Tilson, who spoke with Tongue yesterday at the Value Investing Congress in New York. “It has every market inefficiency you can possibly look for.”

The publisher of El Pais newspaper aims to take over Liberty to gain $870 million in cash to reduce debt, which swelled after an expansion into television services and threatened the company’s viability. In exchange for the cash, Liberty investors will get a stake of more than 50 percent.

Shareholders of New York-based Liberty, led by Nicolas Berggruen and Martin Franklin, haven’t voted on the deal in which they could swap each Liberty share for 1.5 Prisa Class A shares, 3 Class B convertible shares and 50 cents in cash.

Prisa’s stock will be worth about 2.78 euros in a merger, according to Tongue. The shares closed at 1.84 euros yesterday. The Liberty stock will ultimately be worth about $16.50, Tongue said. It traded at $10.49 yesterday in New York. The Liberty warrants, which are a “high-charged way to play the situation” and closed at $1.73 yesterday, are worth about $2.35, he said. A warrant lets the owner buy a stock for a set price on a predetermined date.

“The risks are the deal not closing and the execution of the business plan because it is a relatively complicated company that needs to get rationalized,” Tongue said. “There are very powerful incentives for why everybody is going to vote in favor of this transaction.”

He said the deal will probably close in about a month.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.