Takeover Arbitrage (Noun)
Meaning
Arbitrage involving risk; as in the simultaneous purchase of stock in a target company and sale of stock in its potential acquirer; if the takeover fails the arbitrageur may lose a great deal of money.
Classification
Nouns denoting acts or actions.
Examples
- Takeover arbitrage is a type of investment strategy that involves risk and can result in significant losses if not managed properly.
- In takeover arbitrage, investors buy the target company's stock and short sell the acquirer's stock, hoping to profit from the spread between the two prices.
- Arbitrageurs who engage in takeover arbitrage must carefully analyze the risks involved and set clear profit targets to avoid significant losses.
- If the takeover falls through, the arbitrageur may lose a great deal of money due to the subsequent drop in the target company's stock price.
- To mitigate risks in takeover arbitrage, investors often use hedging strategies, such as options or other derivatives, to limit potential losses.