Merger Arbitrage

Merger arbitrage is a fairly risky and speculative investment strategy – under an investment style known as event-driven investing – that seeks to profit from (typically by positioning ahead of) potential changes in the share prices of companies involved in or rumoured to be about to be involved in mergers and acquisitions (M&A). The strategy will typically be to go long the stock of the company being acquired, and short the stock of the acquiror. If the merger completes as expected, profits will be made on the long position. As the arbitrageurs are at this point shareholders, they can play an important role in defining the outcome of the merger.