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Income Seekers: Don't Miss Xueda Education Group

Xueda Education Group received an acquisition offer at $5.50/ADS.

The deal is expected to close by Q4 2015.

Xueda Education Group's stock closed at $5.08/ADS last Friday.

The investors have an opportunity to make a return of 8% by Q4 2015.


In my latest two articles, I presented two bearish ideas and suggested the investors to short Key Energy Services (NYSE:KEG) and Birks Group (NYSEMKT:BGI) at $1.75/share and $1.01/share respectively. Given that Key Energy Services closed at $0.79/share on Friday 14, 2015 and KEG's puts have more than doubled since my bearish call, the investors who listened to this call had better close their position, reap their quick and outsized profits and move to greener pastures. Where? Well, they can check out my bullish idea this time. And, I am talking about Xueda Education Group (NYSE:XUE) at the current price of $5.08 per American Depositary Share (ADS). Xueda Education Group is a national provider of personalized tutoring services for primary and secondary school students in China.

Actually, this bullish idea is the result of event-driven investing that seeks to exploit pricing inefficiencies that may occur before or after a corporate event, such as a bankruptcy, merger, acquisition or spinoff. Frankly speaking, I like being an event-driven investor, analyzing the terms of the acquisition, looking at the potential suitor, checking any regulatory issues (i.e. antitrust laws) and determining the likelihood of the acquisition actually occurring. Thanks to this event-driven strategy, I recommended the subscribers to my Newsletter buy grossly undervalued Metalico (NYSEMKT:MEA) at (or below) $0.35/share in early June 2015. Back then, Metalico was undergoing a strategic review and finally announced a buyout offer at $0.60/share in late June 2015.

But, I would like to make crystal clear that Xueda Education Group is an attractive story primarily for the income seekers, as explained with more details in the next paragraphs. Xueda is not for the growth investors who want to beat the index and achieve above-average returns.

Event-Driven Investing And Xueda Education Group

Let's dig into the details:

1) It was back in April 2015, when Xueda Education Group announced that it received a preliminary non-binding proposal letter from Insight Investment Co. Ltd. In the Proposal Letter, Insight Investment indicated its interest to acquire all of the company's outstanding shares at $3.38 per ADS, and the company's stock jumped, as illustrated below:

2) In early May 2015, when Xueda announced that it formed a committee of independent directors to evaluate the aforementioned proposal letter dated April 20, 2015 from Insight Investment Co., Ltd. On that front, Xueda retained in late May 2015 Lazard Asia (Hong Kong) Limited as its independent financial advisor and Weil, Gotshal & Manges LLP as its independent U.S. legal counsel to assist with the Independent Committee's review and...