Understanding Merger Arbitrage
Worked Example: These Figures Today
The companies used as examples above, with the current figures behind them. Illustrations of the metric — not a ranking, not a shortlist, and not a recommendation.
| Ticker | Company | Price | Change | Market Cap | MoonshotScore |
|---|---|---|---|---|---|
| SAVE | Spirit Airlines, Inc. | $1.08 | 0.00% | $118M | — |
Shortlist Context
“MoonshotScore rates a US-listed stock 0 to 100 using five sector-relative pillars. Higher means stronger numbers across business quality, safety, valuation, growth and momentum. Eligible common stocks and ADRs only; funds, ETFs, warrants, units, SPACs, preferreds, and notes carry none. It is built for education and deeper due diligence, not financial advice.”
Questions worth resolving before acting on the screen
What are the primary risks in merger arbitrage?
The main risks include deal termination, regulatory challenges, financing issues, and delays. Any of these factors can reduce or eliminate the potential profit.
How is the potential return calculated?
The potential return is the difference between the acquisition price and the current market price, minus transaction costs and factoring in the time value of money until the deal is expected to close. This must be risk-adjusted based on deal certainty.
What due diligence is required for merger arbitrage?
Due diligence includes assessing the deal's terms, regulatory filings, potential antitrust issues, financial health of both companies, and any potential deal breakers. Understanding the motivations of all parties is also crucial.
Is merger arbitrage suitable for all investors?
No, this strategy is considered advanced and is best suited for investors with a high risk tolerance and a deep understanding of corporate finance and M&A transactions. It is not suitable for novice investors.