The mechanics involve putting on a spread position when the deal is an-
nounced and unwinding it on deal completion.
The spread is a key market variable that the arbitrageur relates to.
Its value is roughly equal to the dollar profit per share of target and also
indicative of the inherent risk of deal break.
We also discuss a typical trading strategy.FURTHER READING MATERIAL
History
Nelson, Ralph L. Merger Movements in American History, 1895–1956. (Princeton,
New Jersey: Princeton University Press, 1959).
Nye, Richard B. and Roy C. Smith, “Event Investing” (working paper, Solomon
Center, Leonard N. Stern School of Business, New York University, WP-S-95-
27, 1995).
Mechanics of Risk Arbitrage & Transaction Terms
Moore, Keith M. Risk Arbitrage: An Investor’s Guide. (New York: John Wiley &
Sons, Inc., 1999).
150 RISK ARBITRAGE PAIRS