Читать книгу Mergers, Acquisitions, and Corporate Restructurings - Gaughan Patrick А. - Страница 11

Another group of professionals who can play an important role in takeovers is arbitragers. Generally, arbitrage refers to the buying of an asset in one market and selling it in another. Risk arbitragers look for price discrepancies between different markets for the same assets and seek to sell in the higher-priced market and buy in the lower one. Practitioners of these kinds of transactions try to do them simultaneously, thus locking in their gains without risk. With respect to M&A, arbitragers purchase stock of companies that may be taken over in the hope of getting a takeover premium when the deal closes. This is referred to as risk arbitrage, as purchasers of shares of targets cannot be certain the deal will be completed. They have evaluated the probability of completion and pursue deals with a sufficiently high probability.

The merger arbitrage business is fraught with risks. When markets turn down and the economy slows, deals are often canceled. This occurred in the late 1980s, when the stock market crashed in 1987 and the junk bond market declined dramatically. The junk bond market was the fuel for many of the debt-laden deals of that period. In addition, when merger waves end, deal volume dries up, lowering the total business available. It occurred again in 2007–2009, when the subprime crisis reduced credit availability to finance deals and also made bidders reconsider the prices they offered for target shares.

Some investment banks have arbitrage departments. However, if an investment bank is advising a client regarding the possible acquisition of a company, it is imperative that a “Chinese wall” between the arbitrage department and the advisors working directly with the client be constructed so that the arbitragers do not benefit from the information that the advisors have but that is not yet readily available to the market. To derive financial benefits from this type of inside information is a violation of securities laws.

The arbitrage business has greatly expanded over the past decade. Several active funds specialize in merger arbitrage. These funds may bet on many deals at the same time. They usually purchase the shares after a public announcement of the offer has been made. Under certain market conditions, shares in these funds can be an attractive investment because their returns may not be as closely correlated with the market as other investments. In market downturns, however, the risk profile of these investments can rise.

We will return to the discussion of merger arbitrage in Chapter 6.