Who’s Betting on the Lawson Acquisition?

As shareholders prepare to vote on the proposed acquisition of Lawson Software, recent market activity indicates that investors have attempted to profit from the deal in a variety of ways-sometimes successfully, sometimes not.

One of the largest publicly traded companies in Minnesota has plans to be bought in a $2 billion deal expected to close during the third quarter of this year. And its stock has taken somewhat of a rollercoaster ride in the few months leading up to the transaction.

On March 7, shares of St. Paul-based Lawson Software closed at $9.88. The next day, Reuters reported that the company was eyeing a sale-causing the stock price to soar.

Soon after, the company confirmed that it had received an unsolicited offer from Alpharetta, Georgia-based Infor and San Francisco-based Golden Gate Capital. The bid: $11.25 per share.

But the stock price remained well above that figure-hitting a high of $13.06 on March 14-as some analysts predicted that Infor's bid would get trumped by a higher offer, likely from Oracle.

Speculators that bet on Lawson receiving a higher bid, however, received some potentially disheartening news on April 26, when the company announced that it had accepted Infor's buyout offer, stating that the offer was the best the company received. (In investment-speak, it's called a “take under” when a company is sold for less than its current market value.)

Scott Berg, a research analyst at Minneapolis-based Feltl & Company, said the bump in stock price was “very typical” of these types of deals, although every merger is unique.

Trading volume jumped to 58.5 million shares on the day that Lawson announced it had accepted Infor's offer, up from 3.7 million the previous day, and the stock price dove to $11.06. It continued to hover at between 10 cents and 20 cents below the sale price for several weeks.

That's relatively normal, according to Mark Schappel, director of equity research at New York-based The Benchmark Company. “For that slight, very unlikelihood that something goes wrong-that's what the separation means,” he said. “But basically, the stock price is telling you that people believe this deal is going to get done, and it's going to get done at $11.25.”

After April 26, trading volume essentially leveled out until May 25, when Lawson announced that a federal judge had ruled that some of its products and services infringed on competitor ePlus, Inc.'s trademarks. More than 38 million shares exchanged hands, and the stock closed at $11.07.

Lawson wrote in a U.S. Securities and Exchange Commission filing that the outcome of the litigation “is not an express condition” of the pending deal and “is not expected to delay the merger.” Schappel agrees, stating that it's not a big enough issue to derail the Lawson acquisition.

But the negative publicity surrounding the trademark suit caused shareholders to sell-and it presented an opportunity for some arbitrage investors, who were able to buy at between $11.00 and $11.09. Arbitrage investors often attempt to pocket the difference between the lower stock price before the deal is finalized and the higher sale price. Assuming the Lawson acquisition goes through as planned, those investors will profit when Infor pays $11.25 per share.

For example, Abigail Hooper-managing director at Havens Advisors, LLC, a New York-based merger arbitrage fund manager-recognized May 25 as an attractive opportunity to buy Lawson stock. “I believed the patent ruling wouldn't change the deal,” she said.

Lawson shareholders will vote on June 29 to approve or reject the merger, and as the window to buy narrows as the transaction close date approaches, the stock has edged upward during about the past week, closing at $11.18 on Monday.

While investors weighed the risk of investments leading up to the acquisition, billionaire investor Carl Icahn stood to profit substantially from the deal all along. Icahn acquired an 8.5 percent stake in Lawson last May and soon after upped his stake to about 11 percent.

While Lawson was eyeing a sale, Icahn said that the company should be sold to the highest bidder. But even at the $11.25 per share price, he stands to make $62 million-a profit of about 44 percent-from his investment in the company, according to data compiled by Bloomberg.