Download Merger Arbitrage : a Fundamental Approach to Event-Driven by Lionel Melka PDF

By Lionel Melka

A wave of company mergers, acquisitions, restructuring, and related transactions has created unparalleled possibilities for these versed in modern probability arbitrage options. while, the character of the merger wave has lent such transactions a miles greater measure of predictability than ever sooner than, making threat arbitrage extra beautiful to traders. unusually, there's little transparency and Read more...

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By Lionel Melka

A wave of company mergers, acquisitions, restructuring, and related transactions has created unparalleled possibilities for these versed in modern probability arbitrage options. while, the character of the merger wave has lent such transactions a miles greater measure of predictability than ever sooner than, making threat arbitrage extra beautiful to traders. unusually, there's little transparency and Read more...

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Extra info for Merger Arbitrage : a Fundamental Approach to Event-Driven Investing

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This kind of threat is even more serious if the costs involved in getting access to the sector are not especially high for potential entrants. A merger can be a vital way of responding to the danger posed by new competitors. A company can make entry into the sector more difficult by merging with one of its rivals, suppliers, or distributors. This enables it to raise the cost of entry into a sector to such an extent that penetrating the market becomes either too risky or not profitable enough. By acquiring a potential rival, this kind of merger can also, of course, transform an element of risk into an opportunity for growth.

1 The price offered to shareholders of the target company The bid price is the most important factor: s it must include a control premium over the various reference share prices (volume-weighted averages taken over different periods; the peak price from the 12 months preceding the offer date is often the best indicator of a company’s standalone value); s it must be greater than the entry price paid by the target company’s historic shareholders, hence the need to research as thoroughly as possible the shareholder structure and the entry price paid by the various shareholders; s it must be analyzed against the price targets set by sell-side analysts and against how much growth potential the board and managers of the target company think the share price has; s it should be evaluated based on the likelihood and amount of a counteroffer from a rival bidder (and therefore on the synergies attainable by this competitor).

Following the filing and the proposed undertakings, the European Commission’s initial investigation period (commonly known as Phase 1) was completed at the end of September 2003. At the meeting in Geneva, the management teams of Alcan and Pechiney discussed problems raised in relation to the European competition authorities’ approval procedure, and Mr Rodier said the fundamental issue for Pechiney with regard to Alcan’s offer was the price. He put forward several arguments for the price being substantially higher, while Mr Engen set out the pertinent factors used to determine the price that Alcan was willing to pay.

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