Strategies · Core
Merger Arbitrage
Long the target (and short the acquirer in stock deals) after a bid, to harvest the spread if the deal closes.
Definition
After announcement, buy target, hedge the consideration (short acquirer if stock). P&L is the spread times probability of close, minus the gap if the deal breaks. Position size is a break-risk budget, not a Sharpe on completed deals.
Why it matters
It is the original event book. 2008 and antitrust waves are the left tail that a ‘steady 6%’ poster hides.
Case
A cash deal at 2% spread with a 15% break. The expected is not 2%. Size to the break, not to the coupon.
How to read it
Consideration mix, regulatory path, and financing. A book of 40 deals is still one antitrust regime.
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