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Merger Arbitrage: An Investment Strategy that Banks on Success

Gabelli100 | Sep 28, 2022 |

Days before Elon Musk was set to purchase Twitter for $44 billion, he terminated the deal. Musk’s decision to back out—rumored to be due to the number of spam accounts on the social media platform—could be a breach of contract, according to Roy Behren, co-president and co-chief investment officer at Westchester Capital Management, and portfolio manager of the Merger Fund.

Behren cited the case that made headlines in this webinar co-sponsored with the CFA Society New York, the Gabelli Center for Global Security Analysis, and the Museum of American Finance. Talking with Jonathan Brolin, founder and managing partner of Edenbrook Capital LLC, Behren discussed merger arbitrage, the investment strategy that involves purchasing stocks in merging companies, and what it takes to be successful in the specialized field.

“Arbitrage is more of an art than a science,” Behren said. “It’s not just a purely quantitative process. There are a lot of qualitative judgments that we need to make. Then we can decide whether or not the target company is trading at a price that’s attractive enough to compensate us for the risk that the transaction may not happen as well as compensate for the money we put up to make that investment.”

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