OATS -- worth a gamble? (arbitrage bet)

[NajdorfDefense]

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Shoe,

I think the problem was the arbitrage title you made when in fact it wasn't an arbitrage at all (and the sole reason I opened this thread since I was like "Oh Oh I know what that is..."). However, it has proved very informative. Sometimes you gotta sift through it all though.

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Technically, it is called Merger Arbitrage, but is obviously not pure arb [as Thremp noted] since there is always some low level of risk in even the easiest deal [which this was not.]

[Thremp]

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Shoe,

I think the problem was the arbitrage title you made when in fact it wasn't an arbitrage at all (and the sole reason I opened this thread since I was like "Oh Oh I know what that is..."). However, it has proved very informative. Sometimes you gotta sift through it all though.

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Technically, it is called Merger Arbitrage, but is obviously not pure arb [as Thremp noted] since there is always some low level of risk in even the easiest deal [which this was not.]

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From what I gathered from reading through this, a merger arbitrage requires you to short the other stock to lock in the spread. Am I errant?

From what I gathered, he was making a value play based that he thought the deal was more likely to go through than the market. If he had shorted Whole Foods, it would have been a Merger Arb. Am I incorrect?

I'm just trying to learn the basics on this front.

[Phone Booth]

[ QUOTE ]

From what I gathered from reading through this, a merger arbitrage requires you to short the other stock to lock in the spread. Am I errant?

From what I gathered, he was making a value play based that he thought the deal was more likely to go through than the market. If he had shorted Whole Foods, it would have been a Merger Arb. Am I incorrect?

I'm just trying to learn the basics on this front.

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Yes. Merger arb (more commonly called risk arb, which is a horrible name) is always about making a bet that the deal is more likely to go through than the market. In a cash deal, you'd simply buy the target. In a stock deal, you buy the target, and short the acquirer (exactly the number of stocks that you would be left with from the other leg of the trade, should the deal go through).

[Shoe]

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[ QUOTE ]
Shoe,

I think the problem was the arbitrage title you made when in fact it wasn't an arbitrage at all (and the sole reason I opened this thread since I was like "Oh Oh I know what that is..."). However, it has proved very informative. Sometimes you gotta sift through it all though.

[/ QUOTE ]

Technically, it is called Merger Arbitrage, but is obviously not pure arb [as Thremp noted] since there is always some low level of risk in even the easiest deal [which this was not.]

[/ QUOTE ]

From what I gathered from reading through this, a merger arbitrage requires you to short the other stock to lock in the spread. Am I errant?

From what I gathered, he was making a value play based that he thought the deal was more likely to go through than the market. If he had shorted Whole Foods, it would have been a Merger Arb. Am I incorrect?

I'm just trying to learn the basics on this front.

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This was a cash deal so there is no need to short whole foods in this case. You only want to short if it is a stock deal as opposed to a cash deal.

[Shoe]

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The acquisition was approved today.

Congrats to anyone who bought ahead of time for a nice 23% return in less than one month.

Unless you have done your own research and are real big on Whole foods, I would now sell this stock.

My only regret is this thread got turned into more of a flame war as opposed to legitimate discussion that could have possibly led to many more of us getting a nice return.

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Did you have money on this?

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Unfortunately, I did not. However, it did help my Motley Fool Caps rating [img]/images/graemlins/wink.gif[/img]

[NajdorfDefense]

Yes, as the posters above explained. However, cash deal or no, it's still not a true 'arb' as you think about it. It is not risk-free. With strategies in bonds and Convertible Arb, you can make real arbs, however. In stock mergers you always have deal risk.

[Thremp]

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Yes, as the posters above explained. However, cash deal or no, it's still not a true 'arb' as you think about it. It is not risk-free. With strategies in bonds and Convertible Arb, you can make real arbs, however. In stock mergers you always have deal risk.

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Interesting.