NEW YORK -- Shares of merger partners America Online and Time Warner slid further on Wednesday, as investors' doubts about the deal continued to weigh on the stocks.
But by one measure those concerns have lessened since the deal was announced on Monday, some traders said.After tumbling early Wednesday, shares of AOL and Time Warner recovered somewhat in late morning, then drifted lower throughout the afternoon.
AOL opened Thursday at $62; Time Warner at $81.25.
Including after-hours activity, AOL ended down $3.94 to $60.06, its lowest closing price since Oct. 27.
AOL stock now has fallen 36 percent since its record close of $94 on Dec. 13 and is down 18.6 percent from last Friday's close. The Time Warner deal was announced on Monday.
Time Warner shares fell $6.38 to $79.63 on Wednesday, including after-hours activity. The price has slumped 13.6 percent from Monday's record close of $92.25, though it remains 23 percent above last Friday's close.
At current prices, the merger deal is worth $90.09 in AOL shares to Time Warner shareholders. (They are to receive 1.5 shares in the new company for each Time Warner share held.)
Time Warner's market price is now about 12 percent below the indicated deal value. But that is a smaller difference than the 15 percent spread at the end of Monday's trading -- suggesting lessened concern about the final outcome.
Nonetheless, risk arbitragers -- investors whose business is betting on the outcome of proposed mergers -- are more leery of the deal than the general applause from Wall Street might indicate, some prominent "arbs" say.
These professional speculators believe that there is a serious threat of antitrust action to halt or modify the deal and that having an Internet company as a buyer presents special problems.
What's more, with the closing date of the deal a year away, the profit potential in taking a chance on Time Warner shares -- the normal role of arbs -- is uninspiring, some say.
Risk arbs are a secretive breed trying to profit on the "spread" between the current share price of the target company and the final purchase price.
Arbitrage activity tends to tighten such spreads, as confidence rises in the likelihood of a deal's being completed.
However, Peter Schoenfeld, chairman of P. Schoenfeld Asset Management, a risk-arbitrage firm in New York, said that he doubted many of his fellow arbs were betting heavily on AOL/Time Warner. He guessed that the spread was more likely being tightened by those money managers who believe the merger is a "done deal."
But Guy Wyser-Pratte, another prominent Wall Street arbitrager, said it would be foolish for investors to ignore the possibility of regulatory intervention.
He considers the Clinton Administration's top antitrust officials, led by Assistant Attorney General Joel Klein, prone to attacking high-profile deals to score political points, regardless of whether there are serious legal arguments.
Schoenfeld has already voted with his feet. His firm invested in the deal when it was announced Monday, but "we've reduced our position," he said.