Mergers and acquisition

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Mergers and acquisition

Company A makes an offer of $44-per-share for Company B. Immediately after the announcement

shares of Company A are selling for $86 and shares of company B are selling for $40.1. The

deal is expected to close in 120 days.

a. If the deal closes, what would be the annualized return for a risk arbitrager who buys shares of

Company B at $40.1?

b. Suppose instead, that Company A offers 0.5 of its shares for one of the target. Describe the

trading strategy that the arbitrager should undertake and determine his annualized return if

the deal closes.

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