Originally published in 1982, Risk Arbitrage has become a classic on arbitrage strategies by the "dean of the arbitrage community." It provides an overview of risk arbitrage, how it has been used over the centuries and particularly in modern markets, with a focus on merger arbitrage. From average expected returns to turning a position, cash tender offers, exchange offers, recapitalizations, spinoffs, stub situations, limited risk arbitrage, and corporate freeze-ins, the book provides a step by step walk through of a world of arb strategies illuminated by real world examples and case studies.
Table of Contents:
Preface ix
Chapter 1 Introduction 1
Derivation of Risk Arbitrage 1
The Arbitrage Community 4
A Changing Community from the 1970s to 2000 6
1970s 6
1980s 10
1990s 14
2000 17
Chapter 2 Merger Arbitrage 21
General 21
Gathering Information 22
Figuring of Parities 26
Determination of the Time Element 27
Return on Investment 29
The Risks 29
Average Expected Returns 33
Taking a Position 35
Turning a Position 37
Consummation 38
Tax Strategy 40
Treatment of New Convertible Securities 42
Antitrust Considerations 45
Summary 46
Chapter 3 Merger Arbitrage: Practical Applications 47
Mergers Prior to 1971 47
Generic Calculation of Co. B. Being Acquired by Co. A (Co. B/Co. A) 48
Scientific Data Systems/Xerox 50
Hartford Fire Insurance/I.T.&T. 52
Canada Dry/McCall’s/Hunt Foods 55
Eversharp/Warner Lambert Pharmaceutical 59
Alloys Unlimited/Plessey, Ltd. 66
Chubb Corp./First National City Corp. 70
Mergers from 1971 to the Present 73
New England Nuclear Corp. with Dupont DeNemours Inc. 73
Reliance Electric/Exxon 76
CIT Financial/RCA 78
Richardson-Merrell/Dow Chemical 81
Twentieth Century Fox Film Corp. 82
Use of Options in Merger Arbitrage 84
Utah International/General Electric (without options) 84
Utah International/General Electric(with options) 85
Chapter 4 Cash Tender Offers 89
Situations Prior to 1971 89
Cash Tender Wave of the Late 1970s and Early 1980s 95
Introduction 95
Babcock & Wilcox/McDermott/United Technologies—Merger Chronology (All information is from prospectus and joint proxy statement issued February 22, 1978) 96
Carborundum/Kennecott Eaton Offer of $47/Share 99
Rosario/Amax 100
Warner Swasey/Bendix/Dominion Bridge 102
Pullman/Wheelabrator Frye/McDermott 106
Liggett Meyers/Grand Metropolitan Hotels/ Standard Brands 108
Hobart/Canadian Pacific/Dart & Kraft 111
St. Joe Minerals/Seagrams/Fluor Corp. 112
Chapter 5 Other Risk Arbitrage Situations 117
Exchange Offers 117
Recapitalizations 120
Spinoffs 123
Stub Situations 125
Limited Risk Arbitrage 129
Chapter 6 Corporate ‘Freezeins’: The Subterfuge Syndrome 133
Introduction 133
Some Notable Examples 134
Conclusion 141
Chapter 7 Active Arbitrage 143
The Bache/Pru-Bache Years (1967–1991) 144
Great Western United Corporation 144
Gerber Products Company 145
The McGraw-Hill Corporation 146
The ERC Corporation of Kansas City, Missouri 147
Amax Incorporated 148
Houston Natural Gas 148
The Wyser-Pratte Years: Years of Increasing Activism (1991–Present) 149
A New Beginning 149
Evolution of the Wyser-Pratte Shareholder Rights By-Law 150
Transition 157
Chapter 8 Summary and Conclusions 159
Appendix A 163
Appendix B 181
Appendix C 185
Notes 273
Bibliography 279
Index 283
About the Author :
Guy P. Wyser-Pratte, MBA, is a leading activist hedge fund manager and considered by many to be the founding father of shareholder activism. Since 1991, he has run Wyser-Pratte & Co., which has racked up impressive returns of 25 percent annually. He is the recipient of the Alternative Investment News 2007 Lifetime Achievement Award and is a frequent speaker at investment conferences.
