M&A arbitrage

M&A arbitrage is a way to profit from one company taking over another, or two firms deciding to merge. Both events are usually good for the share price of a target (in an acquisition) or smaller firm (in a merger), but bad for the predator, or larger firm.

That’s because most investors assume the acquiring firm will pay a premium that will never be recovered in future cost savings or other synergies. So a trader, sensing a forthcoming bid, might buy (‘go long’) the target and sell (or ‘short’) the predator using, say, two spread bets.

If the predator’s shares duly fall and the target’s rise, the bet makes money. However, should the proposed deal collapse, the trade must be closed quickly to avoid big losses.

MoneyWeek magazine

Latest issue:

Magazine cover
China's cash problem

How to profit from it

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Bill Bonner: hold on to your cash, the real financial crisis is yet to come

Merryn Somerset Webb talks to Bill Bonner about economic cycles, and the 'catastrophic credit crisis' that will make 2008 look like a picnic.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


6 March 1899: Bayer trademarks Aspirin

Chemical company Bayer was awarded a patent for its pain-relieving acetylsalicylic acid powder, or 'Aspirin', on this day in 1899. It would soon be released in tablet form.