Arbitrageurs predict what happens in takeovers and attempt to earn profits by:
A)Buying target firm shares after the tender offer announcement and selling the shares later for a higher premium.
B)Selling acquiring firm shares before the tender offer announcement and buying the shares later at a lower price.
C)Charging commissions for their advice to target and acquiring firms.
D)None of the above.

Question

Quizplus · Accepted Answer

Arbitrageurs typically buy shares of the target firm after a tender offer announcement and sell them later for a higher price once the acquisition is completed. This is known as merger arbitrage and can result in profits if the acquisition goes through as expected. Selling acquiring firm shares before the tender offer announcement and buying them later at a lower price (short-selling) is also a strategy that can be used, but it carries more risk. Charging commissions for advice is not part of the arbitrage strategy itself, but rather a potential source of income for firms or individuals providing advisory services.

Arbitrageurs Predict What Happens in Takeovers and Attempt to Earn