Merger Arb Spreads

Discussion in 'Strategy Development' started by TheStudent, Sep 26, 2003.

  1. I am interested in studying how merger spreads have behaved in deals past - both successful and failed.

    It doesn't seem to be easy to get data though - as a result of delisting of acquirees.

    Does anyone know of a source?

    PS : I am NOT interested in traditional merger arb.
  2. I have a question on this subject of anyone who was involved the uvn-hsp deal that just closed. Even after the deal received final approval there was still a pretty good premium. The day the deal closed the spread was still trading at $2.

    I was short it for a couple weeks and finally gave up right before it closed because it wasn't coming down at all. What was I missing here? All the other solid, fully approved merger spreads I've seen eventually come down almost to 0 by closing.

    Can anyone enlighten me on this?
  3. Price of the spread might have reflected the perceived risk of the deal not happening. Also not enough guys watching spread to take advantage of opportunity could be the case.
    GE/HON before it blew up had some premium. It sounds like you did the right thing.
  4. ... where to get a database of prices including delisted companies.
  5. Back when there were very frequent mergers etc, it was my general observation that in an all stock deal, the acquired stock would trade at a 10% discount to the actual buy-out 'price.'

    In an all cash deal, the acquired stock would trade within 3% of the price offered.

    Just my observation, from back when these things were going down every day....
  6. There are some very expensive databases for sale (>100k) that contain historical tick data on all stocks (even delisted/merged). If you want to do research yourself the cheapest way is to build your own database using NYSE TAQ data ( It is $400 for each month of historical data you want quotes for. It will take a rack of servers and hard drives to work with very much historical tick data though. S&P has a product called mergerstat that keeps track of all mergers and acquisitions in progress and historical going back like 20yrs (subscribing is like a mortgage payment). Welcome to the big leagues of stat/merger arb. There is plenty of opportunity, but you are competing with hedge funds and big banks. Oh yeah and good players are making consistent single and low double digit returns......none of this 100% bs everyone on here dreams of making. When was the last time you read someone on here talk about backtesting mergers and acquisitions, or any other hard to quantify event. It is not so easy to backtest, but there is a lot of opportunity.....aside from the money, the only barrier to entry is a big fat brain and all of your spare time.

    Good Luck
  7. If you were short the spread, which means short the acquirer and long the target, there is a 100% chance it will converge (if the merger happens). You should have just held the position until the day of the merger. If it is true the spead was $2 on the last trading day then you could have made $2 in one day guaranteed (if it closed). Since you were long the acquirer, on the day the stock stopped trading, you would have received shares of the target......the exact number of shares you were short.
  8. Yep, that's what I expected too. The companies had a release about two weeks before the thing actually closed saying they'd cleared the final regulatory hurdle and the merger would close soon. It started to trade down immediately, which is when I entered, looking for it to come in pretty fast. It just drifted up and hung there, and I couldn't find a reason why. I had to assume that there was something going on I was missing, because it was not acting right at all. I didn't know it was closing the day I exited, the company announced it after the market closed and HSP was gone the next day.

    Yes, it should have been a free $2/share, but it sure didn't trade that way. That's why I'm wondering if anyone on this board held the thing to closing and how it worked out. I've traded quite a few merger spreads and this one acted strange, almost like the terms had changed, but I couldn't find any news to that effect.
  9. mskl


    Not sure what you are talking about here. The FCC officially voted on this deal on Sept 22. I believe this came out after the close.

    The stock last traded on Sep 22. So the last regulatory hurdle still existed when the stock last traded - hence the $2 risk premium.
  10. Thanks, I didn't know there was still a vote to determine things. That explains it.
    #10     Oct 2, 2003