Merger Arbitrage Hedge Fund Strategy ― How Does it Work?

#mergerarbitrage #hedgefunds #trading #riskarbitrage
Merger Arbitrage is an absolute return hedge fund trading strategy that aims to profit from predictable moves in stock prices that occur once a merger deal has been announced. 2020 has not been a great period for this strategy as a number of big deals broke during the selloff in the first quarter. We will discuss a hypothetical merger between Apple and Spotify, see how it would work as a share for share deal and as a cash merger. We will talk about a few real deals like how Sycamore partners backed out of their deal to buy Victoria’s Secret. We will discuss deal break risk and antitrust law, discussing the failed merger between General Electric and Honeywell in 2000 which passed its FTC review, but the European Commission then blocked the deal. This was the first time that officials outside the US broke a merger between two American corporations already approved by the DOJ.

There is a chapter on merger arbitrage in my corporate finance book: https://amzn.to/3fn3rvC

Patrick's Books:
Statistics for Traders: https://amzn.to/3eerLA0
Financial Derivatives: https://amzn.to/3cjsyPF
Corporate Finance: https://amzn.to/3fn3rvC

Visit our website: www.onfinance.org
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Diversification video: https://youtu.be/gXWYpVjMVsA
Antitrust video: https://youtu.be/lIqjCKSOEq8

Timestamps:
0:00 Introduction
0:53 The Merger
1:29 The Deal Announcement
5:50 Insider Trading – Ivan Boesky
6:18 Cash Deals
7:18 The Deal Spread
7:46 Risk Factors
9:00 Stock for Stock Deals
13:40 Comparing Deals
15:24 The Clean Price and Deal Breaks
18:47 Victoria’s Secret & Sycamore Partners
20:10 Antitrust
20:07 GE Honeywell Deal Antitrust
21:31 Merger Arbitrage Returns

Видео Merger Arbitrage Hedge Fund Strategy ― How Does it Work? канала Patrick Boyle