A target company is said to be “in play” once it has been identified as a potential takeover target. This definition can be because of an unsolicited bid for the firm which has become a potential takeover target or has put itself up for sale as part of its corporate strategy. The target can have a single or multiple bidders.
Initially, a company may only be rumored to be part of a potential merger or acquisition or a management buyout. At this point any merger arbitrage strategy employed would be considered speculation and be known as “pre-arbing”. This is a high risk strategy as the initial rumor may prove to be false. However, the trader attempts to capture more of the acquisition premium as the stock is purchased earlier before any official announcement is made.
In Play Analysis
Once the stock is revealed to be in play, news spreads quickly throughout the market. This attracts additional traders as the target shares may now be referred to as deal stock and the share price becomes more volatile due to the increased speculation. Once a bid for the firm is made or speculation of a bid is revealed and company is put in play this may in turn flush out additional bidders. In fact, this is a common tactic to identify if there are additional interested parties wishing to acquire the firm.
Red Robin Gourmet Burgers (RRGB), which is currently facing a hostile takeover bid from Vintage Capital is currently an in play stock. There is no guarantee this deal will be successful or that others bidders will not reveal themselves. However, the term lends itself to a stock that is often involved in a bidding war such as Cincinnati Bell (CBB) where multiple bids are being raised in order to win the contest.
