Merger Arbitrage

THOMAS KIRCHNER, CFA , is the founder and portfolio manager of the Pennsylvania Avenue Funds (www.pennavefunds.com), which invests in merger arbitrage and other event-driven strategies. He also serves as the President and a trustee of the fund. Kirchner's personal blog, The Deal Sleuth, tracks problematic mergers. He holds a BSc from King's College, University of London, a Dipl'me from the Institut d'Etudes Politiques de Paris (Sciences Po), and an MBA from the University of Chicago Booth School of Business.

Preface. Acknowledgments. PART ONE The Arbitrage Process. CHAPTER 1 Introduction to Merger Arbitrage. Cash Mergers. Stock-for-Stock Mergers. CHAPTER 2 Incorporating Risk into the Arbitrage Decision. Probability of Closing. Severity of Losses. Expected Return of the Arbitrage. CHAPTER 3 Sources of Risk and Return. Deal Spread. Two Aspects of Liquidity. Timing and Speed of Closing Dividends. Short Sales as a Hedge and an Element of Return. Leverage Boosts Returns Covered Call Writing. Commissions and Portfolio Turnover. Bidding Wars and Hostile Bids. CHAPTER 4 Deal Structures: Mergers and Tender Offers . Mergers. Tender Offers. Comparison of Mergers and Tender Offers. PART TWO Pitfalls of Merger Arbitrage. CHAPTER 5 Financing. Types of Debt Funding. Financing of Mergers versus Tender Offers. Uncertain Merger Consideration. Conflicted Role of Investment Banks. Fairness Opinions. Systemic Risk. CHAPTER 6 Legal Aspects. Merger Process. Takeover Defenses. CHAPTER 7 Management Incentives. Management Compensation. Continuing Management Interest in Private Equity Buyouts. Long-Term Planning in Management Buyouts. Milking a Company through Related Party Transactions. CHAPTER 8 Buyouts by Private Equity. Private Equity's Advantage. CEOs Don't Want to Sell to the Highest Bidder. Private Equity Funds Have Their Own Agenda. Buyouts as Financial Engineering. CHAPTER 9 Minority Squeeze-outs. Boards Lack Effectiveness During Squeeze-outs. Minority Shareholders Are in a Tough Spot. Family Control. CHAPTER 10 Government Involvement. Antitrust Enforcement. The SEC's Approach to Regulation. State Government. Federal Government. Trade Unions. CHAPTER 11 Four Ways to Fight Abuse of Shareholders in Mergers. "Just Sell" Is for Losers. Case for Activist Merger Arbitrage. Legal Tactics. Public Opposition. PART THREE Investing in Merger Arbitrage. CHAPTER 12 The Role of Merger Arbitrage in a Diversified Portfolio. Volatility of Stocks Going through a Merger. Return and Correlation Characteristics of Merger Arbitrage. Merger Arbitrage Outside the United States. Risk and Return of Merger Arbitrage Funds. Benefits of Merger Arbitrage in a Diverisified Portfolio. CHAPTER 13 Investing in Arbitrage. Trading versus Investing. Leverage and Options. Shorting Stocks. Transaction Costs. Managing the Cash Position. Risk Management. Standard & Poors Merger Arbitrage Index. Separate Accounts. Hedge Funds and Mutual Funds. Notes. About the Author. Index.