Merger Arbitrage – Hedging the Time Period Deal Risk in M&A

In public market M&A transactions, where at least part of the consideration is stock of the acquiror public company, the value offered is subject to market risk as the acquiror’s stock price changes. Collars – long underlying, long put options, financed with short call options-  provide some degree of price protection to acquiror and target between signing (announcement) and closing.  Valuing the hedge correctly is key to making profitable M&A arbitrage trades.


Rising Protectionism in Cross-border Inbound U.S. M&A

Protectionism includes foreign investment restrictions, antitrust regimes and takeover rules that regulators use to block or influence deal outcomes. Protectionism and trade barriers and inward-looking sentiment is seeping into policy and regulation. There have been many changes in discussions between Congress and Committee on Foreign Investment in the United States (CFIUS). Opposition is no longer just vocal; a lot of activity is taking place behind the scenes in Washington. Constituency interests, too are crowding out traditional policy interests. I describe what’s happening:

Contents:

M&A Activity Especially Inbound Drastically Reduces

Protectionism Norms: Evolving

Protectionism in Foreign M&A Deals: U.S. Actors

Protectionism in Foreign M&A Deals: Rising 

Foreign M&A Deals: Typical Post-Announcement Timeline Delay

Reaction to Japanese Investment: Exon-Florio Amendment

Exon-Florio Overview

CFIUS Reform: FINSA and FIRRMA

Reform: Overdue

Due Diligence Check List Questions: Acquirer

Post-Announcement Timeline

Post CFIUS >SEC Review Process

Share Purchase Considerations