HF Itw: Merger Arbitrage Case Study

Have been asked by PM of a HF I am interviewing with to have a think about a recently announced merger between two companies (they do merger arbitrage).

He wants to see the approach I would take in order to assess the opportunity, how methodical I am and assess my ability to go into details in any considerations I would raise.
He mentionned I should have my own view about valuation as the offer doc, for him, is biaised..

Would be keen to hear your views about how you would structure your approach and what aspects you normally look at in these situations.

Pretty sure that would be usefull to any monkey interested in event-driven strategies..

Edit: it is a precise merger they are looking at right now I need to work on

 
Best Response

Rock-Tenn's acquisition of Smurfitt would be a great option to examine to see how some really smart investors look at event-driven investing. It has all the hallmarks of a good arb case: 1) Recently re-orged/potentially undervalued target 2) Decent amount of smart money invested in the target (see Monarch, 3rd Point, et al's letter to the SSCC Board) 3) Interesting management incentives (as discussed in #2) 4) Combo cash/stock purchase price. 5) VERY biased offering doc valuation that followed on the heels of a highly contested bankruptcy valuation (discussed in detail in #2).

I would hesitate to use this as your actual case to present since it may look like you cribbed, but you should consider reading up on it to see how the activist/distressed investors who are holders of SSCC make their case for a higher purchase price.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 
Kenny_Powers_CFA:
Rock-Tenn's acquisition of Smurfitt would be a great option to examine to see how some really smart investors look at event-driven investing. It has all the hallmarks of a good arb case: 1) Recently re-orged/potentially undervalued target 2) Decent amount of smart money invested in the target (see Monarch, 3rd Point, et al's letter to the SSCC Board) 3) Interesting management incentives (as discussed in #2) 4) Combo cash/stock purchase price. 5) VERY biased offering doc valuation that followed on the heels of a highly contested bankruptcy valuation (discussed in detail in #2).

I would hesitate to use this as your actual case to present since it may look like you cribbed, but you should consider reading up on it to see how the activist/distressed investors who are holders of SSCC make their case for a higher purchase price.

Agree - this is a great case study. Check out this link, which has some analysis and a copy of the letter (with awesome analysis inside) that the hedge funds sent to SSCC management.

http://www.distressed-debt-investing.com/2011/02/distressed-event-drive…

- Capt K - "Prestige is like a powerful magnet that warps even your beliefs about what you enjoy. If you want to make ambitious people waste their time on errands, bait the hook with prestige." - Paul Graham
 

I recommend "Risk Arbitrage" by Guy Wyser-Pratte as well, if you have time to get a copy and read it. He presents some exercises that can help you consider the "math" involved in the arb.

http://www.Amazon.com/s/ref=nb_sb_ss_i_0_16?url=search-alias%3Daps&field-keywords=merger+arbitrage&sprefix=merger+arbitrage

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

Molestias quaerat dignissimos ullam labore ab. Quo facere quas eum nemo eius.

Voluptatibus repellendus minus autem qui officiis earum eos. Odit culpa illo corporis necessitatibus.

Voluptatem laborum ad cumque deserunt recusandae quia ut. Rem possimus saepe debitis nisi quisquam explicabo. Adipisci ducimus iure delectus ab voluptatem. Similique repudiandae eum necessitatibus voluptatem officiis.

Eaque id mollitia dolor placeat laudantium veniam incidunt. Fuga molestiae enim dolores alias sed necessitatibus. Molestias autem aut possimus.

Career Advancement Opportunities

April 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Magnetar Capital 96.8%
  • Citadel Investment Group 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

April 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

April 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Citadel Investment Group 95.8%
  • Magnetar Capital 94.8%

Total Avg Compensation

April 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (24) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (249) $85
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”