Westchester Capital’s Michael Shannon and Roy Behren sit down for an interview with DailyAlts editor and publisher Brian Haskin in the final video of a three-part series recorded at the Investing and Liquid Alternatives Conference in New York.
Mr. Shannon begins by explaining the basics of a simple merger-arbitrage deal. He asks viewers to imagine owning shares of a stock valued at $14, and then waking up the next day to find a “friendly offer” by another firm to acquire the company at $20 per share. He says your $14 stock would likely appreciate in value to $18 or $19 in anticipation of the deal closing some months later at $20 – and this is where merger-arbitrage investors earn their profits.
Westchester Capital doesn’t get involved in potential mergers on speculation – they only invest in publically announced deals. Also, as Mr. Behren notes, the firm’s funds are not “index funds” of merger-arbitrage stocks – they only invest in the deals where they feel they’re sufficiently compensated for the risk. After all, if the deal in the example above fails to close, then the stock price will likely head back down to $14.
Click here for Part I or Part III of this video series. For a list of all the exclusive DailyAlts videos, click here.