Description

Endeavor Acquisition (EDA) is a Single Purpose Acquisition Corp. (SPAC).  A timely, short-term investment opportunity has developed in the Company's publicly traded warrants (EDA').  We believe that the purchase of these warrants offers the opportunity to make 50% by the end of this month with a risk of about 5%.  Note that the transaction is commission sensitive.

 For a full discussion of a SPAC please refer to the write-up of AVPA.  From a summary perspective a SPAC is a blind pool where the management team typically receives a 20% over-ride if (and only if) less than 20% of the shareholders opt out of the proposed transaction.  In most cases (particularly in the more recent SPACs) the management team either buys warrants or shares which become worthless if a transaction is not approved by the shareholders (the management team's shares do not vote).  Since SPACs re-emerged in late 2003, there have been over 70 IPO's resulting in over $5 billion being raised.

Endeavor's IPO of 15 million units was priced at $8 and consisted of one share of common and one warrant with a $6 exercise price (note that the warrant can be exercised only after a favorable shareholder vote has occurred).  The common and the warrant now trade separately.  Endeavor, at its IPO value of $120 million is a relatively large SPAC.  As opposed to many SPACs, Endeavor's IPO did not identify a particular industry that it would target.  The two key officers of Endeavor's management team are Eric J. Watson and Jonathan J. Ledecky.  These two men have sterling resumes (see the prospectus or do a Google search), and have substantial net worth's.

 Unlike virtually all other SPACs, the investment that Watson and Ledecky might make is a contingent one.  For the three months following the separation of the common and the warrants, they were required to bid $0.80 a warrant for 15 million warrants (this was for all the warrants in the IPO exclusive of the "shoe" which was exercised).  During the second three month period they were required to bid $0.90 and until December 31, 2006 they are required to bid $1.00.  Thus, until December 31, 2006 there is downside protection at the $1.00 per warrant level - thereby determining the risk of purchasing the warrants.

 Now what is the potential reward?  The current held in trust number is approximately $7.70 per share.  Thus, a transaction is unlikely to be approved by shareholders unless the shares are trading at or above that level.  Endeavor's management has until June 15, 2007 to announce a transaction.  We believe that, if at all possible, management would like to announce a proposed transaction prior to year-end 2006 in order to avoid a situation whereby they may purchase a large number of warrants only to subsequently announce a transaction.  If management does propose a transaction that shareholders embrace we would expect the shares to trade at around $7.70 or possibly even higher.  The intrinsic value of the warrants would then be $1.70.  Whether the warrants would trade at that price (or higher or lower) would be a function of the perception as to how likely it is that proposed transaction will be approved.

 There are three potential outcomes for this trade.  1)  Management does not disclose a proposed transaction; 2) Management does propose a transaction but the market's reaction is unfavorable and 3) Management does propose a transaction and the market's reaction is favorable.  In the case of the first two potential outcomes, an investor can opt to sell the warrants on December 31, 2006 at the prevailing market price which will be at least $1.00 thereby incurring a loss of 5-8%.  However, if the third potential outcome is indeed the actual one these warrants could easily soar in price by over 50%.

We believe that Messrs Watson and Ledecky are extraordinarily well-qualified to find an attractive acquisition candidate.  Moreover, we believe that they are very sensitive to potential shareholder outcries if a transaction is announced shortly after the December 31st date (they could, of course announce a transaction in the second quarter of 2007).  Ideally we believe they would prefer to announce prior to year end, however, we do not have any information which would suggest the probabilities of such an event.

 This recommended trade has well-defined risk coupled with significant reward potential.

Catalyst