Spread analysis: Does the Covidien-Medtronic merger make sense?
This one bears looking into. I’m not an arbitrageur but this one is interesting since the head of investor relations for Covidien has bought nearly $1 million worth of COV stock after the deal was announced.
The following analysis is about as good as I’ve ever seen. Kudos to Market Realist and Mr. Nyitray
By Brent Nyitray, CFA, MBA – Disclosure • Jun 24, 2014 1:38 pm EDT
Merger spread analysis
To perform merger arbitrage, the investor will generally buy the stock of the company being acquired and sell short the stock of the acquiring company. When the deal is completed, the investor will exchange the stock of the company being acquired with the stock of the acquiring company and cash. The investor will then deliver the shares of the stock received to close out the short position.
via Key overview: Merger arbitrage and the Covidien-Medtronic deal – Market Realist.