Merger Arbitrage Spread Tracker List
Researching merger arbitrage investment candidates can be time consuming and expensive for the aspiring arbitrageur. Merger Arbitrage Limited does the hard work for you providing a FREE list of current cash merger arbitrage spreads. This index methodology calculation guide highlights investability and profitability. This list is subject to the following Spread Tracker Eligibility Rules and criteria.
Our spread tracker eligibility rules screen the available merger arbitrage spread universe using the criteria listed below. For example, minimum absolute spread value. This index methodology eliminates deals that are impractical for investment purposes due to commission costs or large bid-ask spreads. Merger Arbitrage Limited ranks the profitability of the remaining deals by annualized return. The top 20 deals from this list form the T20 Portfolio for the coming week. These are general guidelines. We are not suggesting the eliminated deals would not be profitable. However, stocks that seldom trade entail additional risks. Therefore, traders and arbitrageurs are always strongly encouraged to investigate further the nuances of any deal before making an investment. Please refer to our extensive customized in-house Glossary for additional explanations and assistance.
The available deals and merger listings updates on a regular basis subject to the given filters. In addition, we provide a limited real time feed to non-subscribers via twitter. This feed highlights opportunities in merger arbitrage spreads along with the latest news and developments of those deals. Weekly companion articles give selected analysis on the performance of the deal spreads listed. In addition to this, we also have an advanced FREE downloadable stock arbitrage spread calculation tool.
Spread Tracker Eligibility Rules
- There are no cases of “pre-arbing”. However, unsolicited or hostile bids ARE included.
- Cash only deals.
- Target stock trades on a major US stock exchange.
- Current stock price is above $5.
- Offer price is above $5.
- Spread value is greater than $0.05 at time of inclusion.
- Spread value is greater than 0.20% at time of inclusion.
- We do NOT include spreads trading at a premium (target stock price is above the offer price) in the portfolio. This is regardless of the possibility of a higher offer.
- 3-month average daily traded volume is above 100,000.
- 3-month average daily traded value is above $100,000.
- Market capitalization is above $200,000,000.
- We omit deals with outstanding legal issues requiring analysis that one reasonably expects to be beyond a merger arbitrageur. Factors such as “customary closing conditions” are acceptable.
Calculation Guidelines
- This FREE service displays the “Simple Spread” as well as calculating an annualized return based on the expected closing date.
- Dividends ARE included in this report. Thus, we calculate the total amount payable using the expected closing date given by the acquirer. However, unless specifically stated, an early closure may result in dividends not being paid leading to a less profitable arbitrage.
- In light of an unsolicited or hostile bid, Merger Arbitrage Limited will make an estimation of the closing date. We base this estimation upon such factors as similar deals, regulatory clearance, expected management attitude etc.
- If an existing cash deal is improved upon by a stock deal or a combination of stock and cash, the value of the deal in terms of target stock is calculated using the acquirer stock price and the exchange ratio at the time of announcement. For the sake of continuity, the target remains in the list as a hypothetical position would have been initiated when the deal was all cash
- Return calculations do not include commission costs.
Additional Notes
- Inclusion in the list requires an official deal announcement prior to the weekend of publication of the merger arbitrage limited spread list.
- We remove the target stock upon the definitive announcement of the collapse of a deal. Therefore, a market price is required in the return calculation. Consequently, we take the first available price at which we believe a trader can exit a position in a reasonable manner. We make this decision for the sake of continuity and transparency. Although, we remain conscious of each deal having its own unique attributes which may complicate trading decisions in the real world. Merger Masters: Tales of Arbitrage contains further discussion of different potential strategies following the break-up of a deal. This and other appropriate works can be found on our book list as well as our extensive academic research listings. As a rule of thumb, we apply the investment judgement of a prudent man.
- In the event of there not being sufficient candidates for inclusion, we increase the existing positions pro rata to a maximum of 6.67%. i.e. 15 deals. Should there be less than 15 deals, we initiate a theoretical cash position. This reflects the lack of opportunities available and avoids the over reliance and increased weighting on existing positions.
- Stocks not eligible for the T20 portfolio may still be reviewed in the Winners/Losers performance analysis section.
Conclusion
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