Preface ix
Chapter 1 Introduction 1
Derivation of Risk Arbitrage 1
The Arbitrage Community 4
A Changing Community from the 1970s to 2000 6
1970s 6
1980s 10
1990s 14
2000 17
Chapter 2 Merger Arbitrage 21
General 21
Gathering Information 22
Figuring of Parities 26
Determination of the Time Element 27
Return on Investment 29
The Risks 29
Average Expected Returns 33
Taking a Position 35
Turning a Position 37
Consummation 38
Tax Strategy 40
Treatment of New Convertible Securities 42
Antitrust Considerations 45
Summary 46
Chapter 3 Merger Arbitrage: Practical Applications 47
Mergers Prior to 1971 47
Generic Calculation of Co. B. Being Acquired by Co. A (Co. B/Co. A) 48
Scientific Data Systems/Xerox 50
Hartford Fire Insurance/I.T.&T. 52
Canada Dry/McCalls/Hunt Foods 55
Eversharp/Warner Lambert Pharmaceutical 59
Alloys Unlimited/Plessey, Ltd. 66
Chubb Corp./First National City Corp. 70
Mergers from 1971 to the Present 73
New England Nuclear Corp. with Dupont DeNemours Inc. 73
Reliance Electric/Exxon 76
CIT Financial/RCA 78
Richardson-Merrell/Dow Chemical 81
Twentieth Century Fox Film Corp. 82
Use of Options in Merger Arbitrage 84
Utah International/General Electric (without options) 84
Utah International/General Electric(with options) 85
Chapter 4 Cash Tender Offers 89
Situations Prior to 1971 89
Cash Tender Wave of the Late 1970s and Early 1980s 95
Introduction 95
Babcock & Wilcox/McDermott/United TechnologiesMerger Chronology (All information is from prospectus and joint proxy statement issued February 22, 1978) 96
Carborundum/Kennecott Eaton Offer of $47/Share 99
Rosario/Amax 100
Warner Swasey/Bendix/Dominion Bridge 102
Pullman/Wheelabrator Frye/McDermott 106
Liggett Meyers/Grand Metropolitan Hotels/ Standard Brands 108
Hobart/Canadian Pacific/Dart & Kraft 111
St. Joe Minerals/Seagrams/Fluor Corp. 112
Chapter 5 Other Risk Arbitrage Situations 117
Exchange Offers 117
Recapitalizations 120
Spinoffs 123
Stub Situations 125
Limited Risk Arbitrage 129
Chapter 6 Corporate Freezeins: The Subterfuge Syndrome 133
Introduction 133
Some Notable Examples 134
Conclusion 141
Chapter 7 Active Arbitrage 143
The Bache/Pru-Bache Years (19671991) 144
Great Western United Corporation 144
Gerber Products Company 145
The McGraw-Hill Corporation 146
The ERC Corporation of Kansas City, Missouri 147
Amax Incorporated 148
Houston Natural Gas 148
The Wyser-Pratte Years: Years of Increasing Activism (1991Present) 149
A New Beginning 149
Evolution of the Wyser-Pratte Shareholder Rights By-Law 150
Transition 157
Chapter 8 Summary and Conclusions 159
Appendix A 163
Appendix B 181
Appendix C 185
Notes 273
Bibliography 279
Index 283
