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Investing in Hedge Funds, Revised and Updated Edition by Joseph G. Nicholas

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CHAPTER 7
Merger (Risk) Arbitrage
MERGER ARBITRAGE, also sometimes known as risk arbitrage, involves investing in securities of companies that are the subject of some form of extraordinary corporate transaction, including acquisition or merger proposals, exchange offers, cash tender offers, LEVERAGED BUYOUTS, proxy contests, recapitalizations, restructurings, or other corporate reorganizations. These transactions generally involve the exchange of securities for cash, other securities, or a combination of cash and other securities. Typically, a manager purchases the stock of a company being acquired or merging with another company and sells short the stock of the acquiring company. A manager engaged in merger arbitrage transactions derives profit ...

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