Merger Arbitrage
Definition of 'Merger Arbitrage'A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless profit. A merger arbitrageur looks at the risk that the merger deal will not close on time, or at all. Because of this slight uncertainty, the target company's stock will typically sell at a discount to the price that the combined company will have when the merger is closed. This discrepancy is the arbitrageur's profit. |
|
Investopedia explains 'Merger Arbitrage'A regular portfolio manager may focus only on the profitability of the merged entity. In contrast, merger arbitrageurs care only about the probability of the deal being approved and how long it will take the deal to close. |
Related Definitions
Articles Of Interest
-
Trading The Odds With Arbitrage
Profiting from arbitrage is not only for market makers - retail traders can find opportunity in risk arbitrage. -
Alternative Assets For Average Investors
These investments can add a new level of diversification to your portfolio. -
Hedge Funds: Higher Returns Or Just High Fees?
Discover the advantages and pitfalls of hedge funds and the questions to ask when choosing one. -
Hedge Funds Hunt For Upside, Regardless Of The Market
Hedge funds seek positive absolute returns, and engage in aggressive strategies to make this happen. -
Trade Takeover Stocks With Merger Arbitrage
This high-risk strategy attempts to profit from price discrepancies that arise during acquisitions. -
Investment Strategies For Volatile Markets
Find out how you can change your investing strategy based on market conditions. -
The Basics Of Mergers And Acquisitions
Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work. -
Weighted Average Cost Of Capital (WACC)
Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality -
How Interest Rates Affect The Housing Market
Understand how rate changes can affect home prices, and learn how you can keep up. -
Exploring The Current Account In The Balance Of Payments
Learn how a country's current account balance reflects the country's economic health.
Free Annual Reports