COMMERCE 3FH3 Lecture Notes - Lecture 3: Risk Arbitrage, Capital Structure, Supply Chain
19 Oct 2020
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Event-driven investing: must be non-reoccurring, there exists inefficiencies (w/ pricing) Types: m&a and/or buyouts, risk arbitrage, capital structure changes, capital structure arbitrage, special situations, eg. Lawsuit, non-core assets being misvalued, etc: a lot of different strategies, a company being run by a bad management team, investors put pressure on the company to replace its management team, activism. M&a and buyouts: eliminate/reduce competitors, your stock prices increase, revenues go up, expand to new markets/products. Lower risk, so it"s discount rate is lower. This makes its price higher: economies of scale. Synergies of operations (sg&a - selling, general and admin expenses) Supply chain cost savings (affects cogs: acquisition of intellectual property (ip) and/or scarce resources (can include talent, can either improve revenues or cogs. Strategy: basic version, go long on company x and capture the discount, mechanics (of , 50% margin requirement, 3% interest loan, 2% interest on cash, 1% bonus fee. July 1, 2018 - buy 20 x shares.
