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Many risk arbitrageurs believe Nestl� SA has presented a buyer to the Federal Trade Commission for the pet-food assets it must sell to win antitrust approval of its $10.4 billion acquisition of Ralston Purina Co. But the timing of the deal’s close remains uncertain. If the FTC staff is conducting due diligence of a buyer for Meow Mix and the other brands Nestl� must sell, the process will probably stretch out for four to six weeks, arbitrageurs surmise. So the deal could close by early November. But hard information about the FTC probe has been scarce all along, and so arbitrageurs are playing a guessing game. For the past week the persistent buzz among arbitrage sources is that Switzerland-based Nestl� has proposed a buyer and a package of divestitures. Still, if the settlement is complex, it could take more time to iron out details, an arbitrageur cautioned. “The deal is on track to close before the end of the year,” a Nestl� spokesman said. The spread at Monday’s close was $0.84. Were the deal to be completed on Nov. 15, that represents an annualized return of 17.6 percent. Nestl� is paying $33.50 cash for Ralston shares. The problem is that, “The timing on the close of this deal has been a mystery since it was announced,” as one arbitrageur put it. The “information” about the supposed buyer is second- and third-hand, he said. The diverse perceptions of what a settlement with the FTC will entail show just how much the arbitrageurs are in the dark. Some say Nestl� has been asked to divest a dog-food brand in addition to the expected sale of the dry-cat-food Meow Mix. Other sources said dog food has been resolved without a divestiture. There are also different views about whether Nestle will have to sell any cat-food brands other than Meow Mix. One arbitrage source said it doesn’t matter. Nestl� is committed to selling Meow Mix, which is the key to the review, he said. The FTC staff is pleased with the remedies Nestl� has proposed, an arbitrageur said. There have been no indications that there are problems, he said. Comment was not available from the FTC. But who is the buyer? H.J. Heinz & Co. is the name most mentioned, an arbitrageur said. Heinz, which owns the Nine Lives cat-food brand, did not return a call seeking comment. Heinz is not the buyer, counters another arbitrageur. The Heinz pet-food business has been losing market share and the parent is focused on fixing it, not building it, he said. Salomon Smith Barney Inc. analyst Jaine Mehring agreed. Six months ago Heinz looked like a buyer of cat food, Mehring said. But the body language of Heinz management has changed, she said. Now the company seems to view its pet-food business as a source of cash rather than a place to use cash, she said. Copyright (c)2001 TDD, LLC. All rights reserved.

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