What Is Merger Arbitrage – Types Of Merger Arbitrage

October 18, 2022
What Is Merger Arbitrage - Types Of Merger Arbitrage

Merger Arbitrage aims to make money off of the ambiguity that exists between the time that a merger is publicly announced and the time that it is officially consummated. Let’s find out more about Merger Arbitrage.


Merger Arbitrage 101

To generate “riskless” profits, merger arbitrage, which is frequently seen as a hedge fund strategy, includes rapidly acquiring and trading the respective stocks of two merging companies. The target company’s stock usually trades for less than the purchase price because there is a chance that the deal won’t go through. 

A merger arbitrageur will assess the likelihood that a merger won’t close on schedule or at all, and will then buy the stock before the acquisition in the hopes of making money when the merger or acquisition is successful.


Types of Merger Arbitrage

There are two main types of Corporate Merger Arbitrage

  • Cash Merger
  • Stock Merger

Cash mergers and stock mergers are the two primary types of company mergers. In a cash merger, the purchasing business pays cash for the shares of the business entity. In contrast, a stock-for-stock merger entails exchanging the shares of the target firm for that of the acquiring firm.

A merger arbitrageur often buys shares of the subject company’s stock in a stock-for-stock merger while shorting shares of the acquiring company’s stock. The merger arbitrageur could utilize the converted shares to cover the short position if the deal is thus completed and the target company’s stock is converted into the acquiring company’s stock.



Merger arbitration is an interesting process of acquiring a business and merging it with another thriving business. Usually, the buying party takes advantage of any weak point of the second party and thus tries to settle a deal.


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