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.

BREAKING DOWN '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.

  1. Hedge Fund

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  4. Market Arbitrage

    Purchasing and selling the same security at the same time in ...
  5. Arbitrage

    The simultaneous purchase and sale of an asset in order to profit ...
  6. Merger

    The combining of two or more companies, generally by offering ...
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  1. Are there mutual funds that take advantage of merger arbitrage?

    A few select mutual funds focus investing on merger arbitrage. Among these are the Merger Fund, the Arbitrage Fund and the ... Read Full Answer >>
  2. How can I develop a profitable merger arbitrage strategy?

    Traders can implement a merger arbitrage trading strategy by buying the stock of the target company involved in the merger, ... Read Full Answer >>
  3. Who do hedge funds lend money to?

    Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. ... Read Full Answer >>
  4. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  5. What do hedge fund analysts do?

    A hedge fund analyst primarily provides support to a portfolio manager on how to best structure the hedge fund's investment ... Read Full Answer >>
  6. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>

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