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74 - Merger Arbitrage: High returns from high certainty bets

The DIY Investing Podcast

Release Date: 05/03/2020

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More Episodes

Mental Models discussed in this podcast:

  • Arbitrage
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Show Outline

The full show notes for this episode are available at https://www.diyinvesting.org/Episode74

Merger Arbitrage - Examples and Discussion

  • What is Merger Arbitrage?
  • On November 24th, 2019, Louis Vuitton announced the acquisition of Tiffany for $135 per share.
  • As of today's record, on April 18th, 2020, Tiffany was trading at $129.15. (4.5% gain to reach a takeover price of $135 per share)
  • As of March 18th, 2020, Tiffany stock reached a low of below $112 per share. (represents a 20.5% gain to reach $135 takeover price)
  • Very low-risk takeover. On the day of the announcement, shares rose to over $134 per share. 

Summary: 

Merger Arbitrage is an investing strategy designed to capture the value in price differences between a soon to be acquired company and the acquisition price. Investors can sometimes earn high returns at low risk using this strategy.

References