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What?? If you short it at today's price of $13.39 and then are forced to buy it to cover your short at $13.65, you're going to lose money.
by bluedevil2k 14y ago
What?? If you short it at today's price of $13.39 and then are forced to buy it to cover your short at $13.65, you're going to lose money.
- RockyMcNuts 14y agoindeed, lolwut? where can you earn a 'risk-free yield' on anything? 6-month T-bills at 0.11%. merger risk goes both ways, stockholders could ask for more money, balk at tendering shares in the deal, take it to court.
- JumpCrisscross 14y agoI was illustrating, by negation, why a $13.65 buy-out shouldn't immediately lead to the stock rising to $13.65 (because it would produce an arbitrage opportunity). Note that today the stock did get bid up to $13.48. If the deal takes {90, 180, 270, 360} days to pay out, you would be borrowing from the market at {5.2%, 2.6%, 1.7%, 1.3%}. Add to that the cost of a call (to protect you from a rival bidder or enhanced tender) and subtract the probability of the deal falling through and you have a cost of capital. This isn't risk-free since 13.48 != 13.65, but depending on your time horizon, break-up assumptions, and the asset you're buying with the financing, it could still be an attractive proposition.