M&A arbitrage
M&A arbitrage is a way to profit from one company taking over another, or two firms deciding to merge.
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Hargreaves Lansdown bumps up cash ISA with £25 cashback - does it beat the wider ISA market?
Just days before the end of the tax year, Hargreaves Lansdown has launched a £25 bonus for those who open a cash ISA on its savings platform. Does the bonus make it a competitive rate, and are you eligible for the cashback?
By Vaishali Varu Published
-
FCA targets finfluencers with new social media guidance
So-called finfluencers have been warned by the UK financial watchdog that they could face prosecution if they fail to follow new rules.
By Henry Sandercock Published