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HitmanH


Total Posts: 417
Joined: Apr 2005
 
Posted: 2016-11-14 20:59
Has anyone done any work on this?
I've got a reading deck (led by Powell and Nuttall in independent studies), and about to make a start in that reading - but before delving into loads of papers - wondered if anyone has experience on where to start?

Nonius
Founding Member
Nonius Unbound
Total Posts: 12661
Joined: Mar 2004
 
Posted: 2017-02-05 16:57
Hitman, you mean pre-announcement?

Chiral is Tyler Durden

HitmanH


Total Posts: 417
Joined: Apr 2005
 
Posted: 2017-02-05 21:27
Indeed.

Kitno


Total Posts: 337
Joined: Mar 2005
 
Posted: 2017-02-05 22:49
Looking at any recent bond documentation (covenant wording/option language) would potentially given you some indication from the company's perspective. There can be some good signals there.

"The reputation of a firm is like a very delicate living organism which can easily be damaged and which has to be taken care of incessantly, being mainly a matter of human behaviour and human standards." - Warburg

sigma


Total Posts: 105
Joined: Mar 2009
 
Posted: 2017-02-06 08:51
It is typical for a merger to be financed first with bridge loans from the lead investment banks/advisors and then to issue bonds once the regulatory approval is cleared.

Issuing debt for a possible merger financing beforehand is dangerous without clearly stating the purpose of using the funds. In case if additional financing is necessary, the bonds can be downgraded and the firm can be sued as violating the prospectus.

Typically there are always stories out there about potential deals. For example, the story of Japan tobacco buying Imperial is around for years. Having said that, a similar multiyear rumors of Bud buying Sabmiller eventually came true. The timing is everything for this type of strategies...

One thing to look at is implied vols for deep otm calls. These would trade at a premium to puts once rumors start circulating. In the above example, for options on Imperial, 6m 90% put trades at 22.50% while 110% call trades at 25.40%. So there is definitely something out there.

I think that the merger arb is more about trading the convergence in spread post the announcement rather than trying to anticipate it.

Kitno


Total Posts: 337
Joined: Mar 2005
 
Posted: 2017-02-06 23:45
Sigma, I agree with you fully.

I was perhaps not sufficiently clear. I was referring to the company's own perception of its weakness or propensity for deal interest from others, i.e. before the company is privately aware itself.

"The reputation of a firm is like a very delicate living organism which can easily be damaged and which has to be taken care of incessantly, being mainly a matter of human behaviour and human standards." - Warburg
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