Risk Arbitrage

Guy P. Wyser-Pratte, MBA, is a leading activist hedge fund manager and considered by many to be the founding father of shareholder activism. Since 1991, he has run Wyser-Pratte & Co., which has racked up impressive returns of 25 percent annually. He is the recipient of the Alternative Investment News 2007 Lifetime Achievement Award and is a frequent speaker at investment conferences.

• Preface ixChapter 1 Introduction 1Derivation of Risk Arbitrage 1The Arbitrage Community 4A Changing Community from the 1970s to 2000 61970s 61980s 101990s 142000 17Chapter 2 Merger Arbitrage 21General 21Gathering Information 22Figuring of Parities 26Determination of the Time Element 27Return on Investment 29The Risks 29Average Expected Returns 33Taking a Position 35Turning a Position 37Consummation 38Tax Strategy 40Treatment of New Convertible Securities 42Antitrust Considerations 45Summary 46Chapter 3 Merger Arbitrage: Practical Applications 47Mergers Prior to 1971 47Generic Calculation of Co. B. Being Acquired by Co. A (Co. B/Co. A) 48Scientific Data Systems/Xerox 50Hartford Fire Insurance/I.T.&T. 52Canada Dry/McCall’s/Hunt Foods 55Eversharp/Warner Lambert Pharmaceutical 59Alloys Unlimited/Plessey, Ltd. 66Chubb Corp./First National City Corp. 70Mergers from 1971 to the Present 73New England Nuclear Corp. with Dupont DeNemours Inc. 73Reliance Electric/Exxon 76CIT Financial/RCA 78Richardson-Merrell/Dow Chemical 81Twentieth Century Fox Film Corp. 82Use of Options in Merger Arbitrage 84Utah International/General Electric (without options) 84Utah International/General Electric(with options) 85Chapter 4 Cash Tender Offers 89Situations Prior to 1971 89Cash Tender Wave of the Late 1970s and Early 1980s 95Introduction 95Babcock & Wilcox/McDermott/United Technologies—Merger Chronology (All information is from prospectus and joint proxy statement issued February 22, 1978) 96Carborundum/Kennecott Eaton Offer of $47/Share 99Rosario/Amax 100Warner Swasey/Bendix/Dominion Bridge 102Pullman/Wheelabrator Frye/McDermott 106Liggett Meyers/Grand Metropolitan Hotels/ Standard Brands 108Hobart/Canadian Pacific/Dart & Kraft 111St. Joe Minerals/Seagrams/Fluor Corp. 112Chapter 5 Other Risk Arbitrage Situations 117Exchange Offers 117Recapitalizations 120Spinoffs 123Stub Situations 125Limited Risk Arbitrage 129Chapter 6 Corporate ‘Freezeins’: The Subterfuge Syndrome 133Introduction 133Some Notable Examples 134Conclusion 141Chapter 7 Active Arbitrage 143The Bache/Pru-Bache Years (1967–1991) 144Great Western United Corporation 144Gerber Products Company 145The McGraw-Hill Corporation 146The ERC Corporation of Kansas City, Missouri 147Amax Incorporated 148Houston Natural Gas 148The Wyser-Pratte Years: Years of Increasing Activism (1991–Present) 149A New Beginning 149Evolution of the Wyser-Pratte Shareholder Rights By-Law 150Transition 157Chapter 8 Summary and Conclusions 159Appendix A 163Appendix B 181Appendix C 185Notes 273Bibliography 279Index 283