74 - Merger Arbitrage: High returns from high certainty bets

Episode 74 of the The DIY Investing Podcast podcast, hosted by Trey Henninger: Private Investor, Portfolio Manager, Business Strategist, and Value Investing Expert, titled "74 - Merger Arbitrage: High returns from high certainty bets" was published on May 3, 2020 and runs 26 minutes.

May 3, 2020 ·26m · The DIY Investing Podcast

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Episode Description

Mental Models discussed in this podcast:

Arbitrage
Efficient Market Hypothesis
Brand Power
Luxury Power

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Show Outline

The full show notes for this episode are available at https://www.diyinvesting.org/Episode74

Merger Arbitrage - Examples and Discussion

What is Merger Arbitrage?
On November 24th, 2019, Louis Vuitton announced the acquisition of Tiffany for $135 per share.
As of today's record, on April 18th, 2020, Tiffany was trading at $129.15. (4.5% gain to reach a takeover price of $135 per share)
As of March 18th, 2020, Tiffany stock reached a low of below $112 per share. (represents a 20.5% gain to reach $135 takeover price)
Very low-risk takeover. On the day of the announcement, shares rose to over $134 per share.

Summary:

Merger Arbitrage is an investing strategy designed to capture the value in price differences between a soon to be acquired company and the acquisition price. Investors can sometimes earn high returns at low risk using this strategy.