Merger Arbitrage

Merger Arbitrage is a trader strategy applied when the purchaser company announces it is buying the target company. Through the period until the closing of the purchase, the target company’s shares should rise to same price that the purchaser company offered. The strategy is to take positions to capture the spread and to reap the profits when the deal closes. The strategy can be frustrated by, for example, regulatory actions that delay or forestall closing, by a down-swing in demand for the target company’s goods or services, and also by a spike in the costs of target company’s inputs.