Praise for Risk Arbitrage
"Guy Wyser-Pratte's timeless classic, Risk Arbitrage, continues to be a resource for the arbitrage community. The addition of a section on activism brings the original work into the modern day." -Peter Schoenfeld, Chairman & CEO, P. Schoenfeld Asset Management LLC
"Guy Wyser-Pratte's classic MBA thesis provided a beacon of light to the murky world of arbitrage. It was a must-read for me when I first started my business in 1976, and this updated book is a must-read today for a new generation of investors seeking absolute returns for all seasons."
-Mario J. Gabelli, Chairman, Gabelli Funds, Inc.
Arbitrage-the act of buying an article in one market and selling it in another-has been a popular investment strategy for as long as people have been trading. Originally published in 1971, Risk Arbitrage is the classic text on arbitrage strategies.
Written by leading activist fund manager Guy Wyser-Pratte, also known as "the dean of the arbitrage community," this book provides an unparalleled overview of risk arbitrage-with a clear focus on merger arbitrage-and how it has been used over the years, as well as in modern markets.
Covering everything from average expected returns to corporate freeze-ins, this book also introduces a new chapter on "active arbitrage" that shows the morphing of activism and arbitrage. Illuminated by real-world examples and case studies, Risk Arbitrage is a must-have guide for every serious investment professional and savvy individual investor.

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 ix

Chapter 1 Introduction 1

Derivation of Risk Arbitrage 1

The Arbitrage Community 4

A Changing Community from the 1970s to 2000 6

1970s 6

1980s 10

1990s 14

2000 17

Chapter 2 Merger Arbitrage 21

General 21

Gathering Information 22

Figuring of Parities 26

Determination of the Time Element 27

Return on Investment 29

The Risks 29

Average Expected Returns 33

Taking a Position 35

Turning a Position 37

Consummation 38

Tax Strategy 40

Treatment of New Convertible Securities 42

Antitrust Considerations 45

Summary 46

Chapter 3 Merger Arbitrage: Practical Applications 47

Mergers Prior to 1971 47

Generic Calculation of Co. B. Being Acquired by Co. A (Co. B/Co. A) 48

Scientific Data Systems/Xerox 50

Hartford Fire Insurance/I.T.&T. 52

Canada Dry/McCall's/Hunt Foods 55

Eversharp/Warner Lambert Pharmaceutical 59

Alloys Unlimited/Plessey, Ltd. 66

Chubb Corp./First National City Corp. 70

Mergers from 1971 to the Present 73

New England Nuclear Corp. with Dupont DeNemours Inc. 73

Reliance Electric/Exxon 76

CIT Financial/RCA 78

Richardson-Merrell/Dow Chemical 81

Twentieth Century Fox Film Corp. 82

Use of Options in Merger Arbitrage 84

Utah International/General Electric (without options) 84

Utah International/General Electric(with options) 85

Chapter 4 Cash Tender Offers 89

Situations Prior to 1971 89

Cash Tender Wave of the Late 1970s and Early 1980s 95

Introduction 95

Babcock & Wilcox/McDermott/United Technologies-Merger Chronology (All information is from prospectus and joint proxy statement issued February 22, 1978) 96

Carborundum/Kennecott Eaton Offer of $47/Share 99

Rosario/Amax 100

Warner Swasey/Bendix/Dominion Bridge 102

Pullman/Wheelabrator Frye/McDermott 106

Liggett Meyers/Grand Metropolitan Hotels/ Standard Brands 108

Hobart/Canadian Pacific/Dart & Kraft 111

St. Joe Minerals/Seagrams/Fluor Corp. 112

Chapter 5 Other Risk Arbitrage Situations 117

Exchange Offers 117

Recapitalizations 120

Spinoffs 123

Stub Situations 125

Limited Risk Arbitrage 129

Chapter 6 Corporate 'Freezeins': The Subterfuge Syndrome 133

Introduction 133

Some Notable Examples 134

Conclusion 141

Chapter 7 Active Arbitrage 143

The Bache/Pru-Bache Years (1967-1991) 144

Great Western United Corporation 144

Gerber Products Company 145

The McGraw-Hill Corporation 146

The ERC Corporation of Kansas City, Missouri 147

Amax Incorporated 148

Houston Natural Gas 148

The Wyser-Pratte Years: Years of Increasing Activism (1991-Present) 149

A New Beginning 149

Evolution of the Wyser-Pratte Shareholder Rights By-Law 150

Transition 157

Chapter 8 Summary and Conclusions 159

Appendix A 163

Appendix B 181

Appendix C 185

Notes 273

Bibliography 279

Index 283