Publications
Publications
- December 2007 (Revised January 2008)
- HBS Case Collection
Evaluating M&A Deals-Announcement Effects, Risk Arbitrage and Event Risk
Abstract
The announcement of merger or acquisition conveys new information to the capital markets. This note describes how the stock prices of a Buyer and Target behave after the announcement of a deal. First, for an all-stock deal that is certain to go through, the note defines accouchement effects and describes the fundamental arbitrage relationship between Target and Buyer stock prices. It shows how post-announcement prices may be used to infer the market's estimate of synergies. It then explains how the betas of the two companies change post-announcement and the arbitrage relationship between prices in a cash-and-stock deal. Finally, it defines event risk and explains how it affects the prices of the Buyer and the Target.
Keywords
Citation
Baldwin, Carliss Y. "Evaluating M&A Deals-Announcement Effects, Risk Arbitrage and Event Risk." Harvard Business School Background Note 208-103, December 2007. (Revised January 2008.)
