Corp. (MTC). The exchange ratio was 1.15. The deal was announced June 1,
- It became obvious that the deal was a failed deal around October 13,
- The plot of the spread in the graph is for these dates. Notice that the
spread does not converge at all. This is indicative of the risk involved in this
particular merger. When it becomes obvious that the deal will not go
through, the spread in fact blows up.
We also present cases where the theory does not bear out. Figure 11.4a
is a plot of an inverted spread. The bidder in this case was Venetor Group
(Z). The target was Sports Authority (TSA). The exchange ratio was 0.8.
The deal was announced May 7, 1998, and it became apparent that the deal
was unsuccessful around September 10, 1998. Note that the spread in this
case takes on negative values. The logarithm of the spread in this case is
undefined. It is not possible to apply the theory here. Such a situation is
The Market Implied Merger Probability 181
FIGURE 11.3A Successful Merger (NWL-RBD).02040 60 80 100–0.2Spread on Close0.20.61.01.41.82.2FIGURE 11.3B Unsuccessful Merger (AHP-MTC).10 30 50 70 9002Spread on Close^46810121416