Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Merger Arbitrage Plays Hedge Funds Like

Merger arbitrage is one of the most common hedge fund strategies that can produce relatively small correlations with market returns. This doesn’t mean that the strategy is risk-free though. When a merger is announced the acquired company’s stock price increases close to the merger price but usually stays a little bit below the announced price. The spread between actual price and the announced price is what merger arbitrageurs aim to make for their investors. One of the best pieces on merger arbitrage is written by Joel Greenblatt in You Can Be A Stock Market Genius. Here is how he explains the risks in merger (or risk) arbitrage:

GOTHAM ASSET MANAGEMENT

First, the deal may not go through for a variety of reasons. These may include regulatory problems, financing problems, extraordinary changes in a company’s business, discoveries during the due diligence process, personality problems, or any number of legally justifiable reasons people use when they change their mind. In the event of a broken deal, (acquired) Company B’s shares may fall back to the predeal price of $25 (from $38) or even lower, resulting for big losses for the arbitrageur. The second risk that the arbitrageur is underwriting is the timing risk.

Read the rest of the article at Seeking Alpha>>>

Biotech Insider Alert - $5 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...
X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!