How can you and I profit from corporate mergers and acquisitions?  What should you do when one of your stocks gets a buyout offer?  Today I’ll be discussing all kinds of corporate deals and what they mean for investors.  I’ll also present a couple ETFs that allow you to emulate the merger arbitrage strategy used by many hedge funds.

 

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Pac-Man eating

(CC image by Pierre Boisonnet on Flickr)


Section 1: Transaction Types & Examples

Cash buyouts

Stock-for-stock transactions / mergers

Combinations (cash + stock)

Merger of equals

Spinoffs


Section 2: How to React to a Buyout Offer

Terms: – what are you getting for your shares, what are the tax consequences, and what’s the chance the deal gets done?

Valuation (two of the best books are by Aswath Damodaran: The Little Book of Valuation and Investment Valuation: University Edition)

Likelihood of a bidding war

Recent price history of the stock


Section 3: Profiting from Corporate Deal-Making

Merger arbitrage strategies: active & passive

ProShares Merger ETF (MRGR)

IQ Merger Arbitrage ETF (MNA)

Buying stocks in anticipation of a deal


 

References

Largest corporate spinoffs – Wikipedia

Largest corporate acquisitions – Wikipedia

Paper on merger-arbitrage strategy by Brenda Kahn, University of Southern Indiana (PDF)

The Hedge Fund Journal – Ride the M&A Wave With Merger Arbitrage (PDF)

Fairmark.com – tax consequences of cash received in mergers


Intro music and mid-program music by audionautix.com


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