Merger Arbitrage: How to Profit from Event-Driven Arbitrage

Overview

Merger Arbitrage is the definitive book on one of the most effective forms of arbitrage. Organized into three comprehensive parts, this reliable resource introduces you to the basics of the arbitrage process in Part One, discusses the possible pitfalls of the approach in Part Two, and deals with some practical questions of investing in merger arbitrage in Part Three.

Filled with in-depth insights and expert advice, this timely guide goes beyond the description of the arbitrage ...

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Overview

Merger Arbitrage is the definitive book on one of the most effective forms of arbitrage. Organized into three comprehensive parts, this reliable resource introduces you to the basics of the arbitrage process in Part One, discusses the possible pitfalls of the approach in Part Two, and deals with some practical questions of investing in merger arbitrage in Part Three.

Filled with in-depth insights and expert advice, this timely guide goes beyond the description of the arbitrage process to examine the benefits of adding merger arbitrage to your portfolio, while introducing you to the vehicles that can be used to incorporate this strategy into your everyday investment endeavors.

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Product Details

  • ISBN-13: 9780470371978
  • Publisher: Wiley
  • Publication date: 8/3/2009
  • Series: Wiley Finance Series , #472
  • Edition number: 1
  • Pages: 355
  • Sales rank: 1,511,889
  • Product dimensions: 6.30 (w) x 9.10 (h) x 1.30 (d)

Meet the Author

THOMAS KIRCHNER, CFA, is the founder and portfolio manager of the Pennsylvania Avenue Funds (www.pennavefunds.com), which invests in merger arbitrage and other event-driven strategies. He also serves as the President and a trustee of the fund. Kirchner's personal blog, The Deal Sleuth, tracks problematic mergers. He holds a BSc from King's College, University of London, a Diplôme from the Institut d'Etudes Politiques de Paris (Sciences Po), and an MBA from the University of Chicago Booth School of Business.

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Table of Contents

Preface.

Acknowledgments.

PART ONE The Arbitrage Process.

CHAPTER 1 Introduction to Merger Arbitrage.

Cash Mergers.

Stock-for-Stock Mergers.

CHAPTER 2 Incorporating Risk into the ArbitrageDecision.

Probability of Closing.

Severity of Losses.

Expected Return of the Arbitrage.

CHAPTER 3 Sources of Risk and Return.

Deal Spread.

Two Aspects of Liquidity.

Timing and Speed of Closing

Dividends.

Short Sales as a Hedge and an Element of Return.

Leverage Boosts Returns

Covered Call Writing.

Commissions and Portfolio Turnover.

Bidding Wars and Hostile Bids.

CHAPTER 4 Deal Structures: Mergers and Tender Offers.

Mergers.

Tender Offers.

Comparison of Mergers and Tender Offers.

PART TWO Pitfalls of Merger Arbitrage.

CHAPTER 5 Financing.

Types of Debt Funding.

Financing of Mergers versus Tender Offers.

Uncertain Merger Consideration.

Conflicted Role of Investment Banks.

Fairness Opinions.

Systemic Risk.

CHAPTER 6 Legal Aspects.

Merger Process.

Takeover Defenses.

CHAPTER 7 Management Incentives.

Management Compensation.

Continuing Management Interest in Private Equity Buyouts.

Long-Term Planning in Management Buyouts.

Milking a Company through Related Party Transactions.

CHAPTER 8 Buyouts by Private Equity.

Private Equity's Advantage.

CEOs Don't Want to Sell to the Highest Bidder.

Private Equity Funds Have Their Own Agenda.

Buyouts as Financial Engineering.

CHAPTER 9 Minority Squeeze-outs.

Boards Lack Effectiveness During Squeeze-outs.

Minority Shareholders Are in a Tough Spot.

Family Control.

CHAPTER 10 Government Involvement.

Antitrust Enforcement.

The SEC's Approach to Regulation.

State Government.

Federal Government.

Trade Unions.

CHAPTER 11 Four Ways to Fight Abuse of Shareholders inMergers.

“Just Sell” Is for Losers.

Case for Activist Merger Arbitrage.

Legal Tactics.

Public Opposition.

PART THREE Investing in Merger Arbitrage.

CHAPTER 12 The Role of Merger Arbitrage in a DiversifiedPortfolio.

Volatility of Stocks Going through a Merger.

Return and Correlation Characteristics of Merger Arbitrage.

Merger Arbitrage Outside the United States.

Risk and Return of Merger Arbitrage Funds.

Benefits of Merger Arbitrage in a Diverisified Portfolio.

CHAPTER 13 Investing in Arbitrage.

Trading versus Investing.

Leverage and Options.

Shorting Stocks.

Transaction Costs.

Managing the Cash Position.

Risk Management.

Standard & Poors Merger Arbitrage Index.

Separate Accounts.

Hedge Funds and Mutual Funds.

Notes.

About the Author.

Index.

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