(^3) Brian Burrough and John Helyar, “Barbarians at the Gate: The Fall of RJR
Nabisco.”HarperCollins(Jan. 1991).
Risk Arbitrage Mechanics 143
The preceding description of the merger process may seem cut and
dried. Nothing, however, could be further from the truth. The due
diligence is intense, and negotiations are complex. To get an idea of the
extremes to which the process can play out, we strongly suggest read-
ing “Barbarians at the Gate: The Fall of RJR Nabisco,”^3 a narrative on
the RJR Nabisco leveraged buyout.
As for the arbitrageur, the process is fraught with uncertainty (in
some cases more than the others). Antitrust issues, actions of other po-
tential bidders, second thoughts on part of the principals involved, fi-
nancing problems, defensive merger tactics (poison pills), problems
during the shareholder voting process, a general collapse of the over-
all market, and reaction of market participants to merger announce-
ment (the laundry list goes on) are all issues that the arbitrageur needs
to consider while placing the bet. In fact, the practice of risk arbitrage
could require one to be a renaissance man, knowledgeable in analyz-
ing financial statements, well versed in legal procedures, and be a
trader, all at the same time.
tuis.
(Tuis.)
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