Do HF still go for Merger Arbitrage?
Anyone know which HF focus on public M&A stock price discrepancies?
& how do they justify their gains consistently without insider prosecution?
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Did you mean merger arbitrage?
Multiple arbitrage is different, but merger arbitrage answers your questions…
If you meant merger arbitrage, yes… it’s still very much around with a small community on here.
It’s also having a great year as a strategy after sucking last year.
Follow Yiqin Shen on LinkedIn if you want to stay up on it. She reports on the strategy for Bloomberg.
The search function works great if it’s merger arbitrage firms that you’re after. Can’t really help you with multiple arbitrage.
And yes. News “leaks” all the time. Or guys have “good phone.” You go to jail for a long time though. Don’t think anyone has got caught recently, but doesn’t mean it doesn’t happen.
Yes, merger arbitrage was what I was after. I don't know if autocorrect or if it was just 3am.
Thanks for the LinkedIn pointer & overview, i’ll take a look.
So, ‘leaks’ & ‘good phone’, how exactly do these work, how can an investor wangle their way out of insider accusations?
What would a common justification or excuse be for successfuly profiting off merger arbitrage?
Sure.
Look at US Steel. (Deal is closed now, but ticker was X)
December 2023. Price is trickling up before gapping overnight to $50ish if my memory is correct.
Basically, this situation was an incredibly public auction involving Cliffs and some other companies before Nippon came in out of the blue and paid a huge premium. If guys bought US Steel due to the other public offers, they made a lot of money, and it “looks” like insider trading, but was really just a company paying a huge premium for a company with massive replacement value (can’t build a steel mill overnight)
This isn’t technically merger arbitrage though… more of an offshoot of event-driven. You’ll hear this kind of trading called “soft-catalyst” or “unsigned deals” or “pre-DMA (definitive merger agreement). Look at how BHF has traded off of rumors recently to see the crazy price action.
Traditional merger arbitrage is buying US Steel when there is a legal, binding agreement for one company to buy another, in stock or cash. This isn’t insider trading at all, but rather trying to squeeze the last drop out of the stock before it’s absorbed by another.
Now, when someone randomly opens 2k contracts out of the money on weekly options and “magically” a deal happens the next week… that’s insider trading. Like I said, not sure of anyone who got caught recently, but Boesky did way back when. Probably the most famous example.
There have been lots of famous arbs over the years. A lot of guys cut their teeth on the strategy.
As for “leaks” and “good phone”… maybe IR just says a little too much if you call them about a rumor. Maybe you track a corporate jet flying into an obscure airport where it’s pretty obvious who the jet is visiting. It’s a VERY closed off strategy, and guys don’t really want to share too much.
Again, thanks, excellent overview.
On a slightly different note, do you recommend any good resources or books for starting to learn HF strats/technicals?
I’ve just got a VIC account so will be looking on there. & have been trying to find past long & short papers from HFs like PS… etc.
I’m most interested in activist investing, also a little on long/short, multiple arb, and other strats that lend themselves/are somewhat transferable from the IB/PE/HF route.
Any recommendations please let me know. Thanks
I can really only speak to merger arb.
Get Wyser Pratte’s book from Amazon, and “merger masters” by Gabelli. I think Wyser Prattes is just called Risk Arbitrage.
Completely different reads… Wyser Pratte is technical and Gabelli is a story teller.
Remember that we have no equity in this business. You have your brain and experiences and that is it. For that reason, most guys don’t talk about anything. No free alpha.
X
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Read my other comments and other peoples in merger arb threads. Recently, HES/CVX, X, GMS, KRTX&CERE&ITCI.
Ask ChatGPT for timelines and help understanding stuff and read all the filings on EDGAR over the life of the deal
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