Venoco, Inc (VQ) buyout by CEO

Venoco, Inc (VQ) closed at $11.23 on Friday 2/17/2012. 

Just like Seaspan (SSW), VQ looks to be a $20 bill sitting on the ground.  The CEO, Timothy Marquez, has offered to purchase the company for $12.50 per share.  The Board of Directors has approved the transaction. 

The market does not believe that the company will be purchased as evidenced by the spread between the trade.  The market is currently discounting the buyout at over 10% or 30-50% annualized, depending on when the merger closes.  The annualized return is too attractive to pass up. 

There are risks of the merger not closing and if that is the case, I am willing to own the stock at these levels.   Recently released 4th quarter and full year results show a company performing very well. 

http://finance.yahoo.com/news/Venoco-Inc-Announces-Year-End-iw-477368265.html?x=0

"Completion of the transaction is subject to certain closing conditions, including procurement of financing. The merger agreement also contains a non-waivable condition that a majority of the outstanding shares of Venoco not owned by Mr. Marquez and his affiliates, or by any director, officer or employee of Venoco or its subsidiaries, vote in favor of the adoption of the merger agreement. Shareholders are cautioned that there can be no assurance that the company will complete the merger."

If I had purchased shares at a higher price, I would not vote for the merger.  I think VQ is worth more than $12.50 but the annualized return is more attractive and why I would vote for the merger.  The risk of the merger not closing could also become a reward, if a sweetner or higher bid is made by Mr Marquez. 

Another potential reward is a higher bid from another company for what looks to be very valuable play, Monterey Shale. 

Please review the presentation below (page 7 - Monterey Shale)

http://media.corporate-ir.net/media_files/irol/19/193733/Venoco3QUpdate110111.pdf

VQ and Occidental Petroleum (OXY) are doing joint 3-D Seismic to look at the acreage and understand how best to exploit the field.  Looking at a recent OXY presentation, OXY notes that the Monterey Shale might be their biggest play (California pages 18-24) in the next 10 years. 

http://www.oxy.com/InvestorRelations/Documents/BofAPresentation.pdf

Long VQ