currently, right? go back historically and see. trading price following announcement, a week following announcement, a month following announcement as a % of announced price (I guess to be most accurate, in a bid scenario). My guess is that the majority of deals the post announcement stock price of target will trade at a slight discount to the announced price. Most deals tend to be less likely to close than more. Over the last 5 years, I expect this discount to be less and in some cases a premium, as private equity and other capital classes may have resulted in more "bidding wars" than historically. I could be wrong, though. Curiously, what's Yahoo's discount relative to the others? no doubt. I'm not throwing Microsoft under the bus or anything. Just pointing out, imo, they could have saved some money and made a lower, but equally compelling offer. the fact that they didn't have to, or could afford not to, doesn't mean they aren't potentially overpaying. Nor does the fact that they're potentially overpaying mean it will be a bad deal. Some deals you stretch for...I wouldn't have stretched quite so much, personally (because not only do I think they could have bid less, but because if it fails it will hurt all that much more). true. just saying, should they have bid so high? If I'm a Yahoo ivnestor, I'm jumping at $29...I'm ecstatic at $31. I may be pissed if I got in at $33 two years ago, but better than seeing my value continue to drop. with two of you saying it, I'll stand corrected. I'm not a trader. So merger arbitrage is more about % discount of announced price. So the question here is, is Yahoo trading at a higher discount then some other currently announced bids (bids, not deals). Also, what is the typical response to a buyer stock price? Microsoft traded way down post announcement...and was down again today, though not as much as the market overall.
i dont think i wrote that i understand your point, but they thought 31 was the number it took for whatever reasons. is it a bit more than they should have bid? maybe. But it hardly seems too excessive, especially for microsoft
ok i just looked at the proposed deal again and it is one of those crazy ones that you don't really know what each YHOO shareholder will be getting until after the vote is held. i'm not 100% sure but i believe that puts the yhoo buyout price at 29.85 as of microsoft's close today. the formula i am using is (msft*.9509)/2+($31/2). let's say that is correct, which i am not sure that it is, then that gives a 1.79% discount to the buyout price. for mergers that may run into complications that is a very slim discount, but this merger has two things that are creating that tight spread. the potential to attract another bidder in the market's eyes (even though i believe it is flawed thinking since News Corp is officially out and AT&T was the only other rumored company to make a bid) and the potential of MSFT increasing the price to make YHOO shareholders happy. also, there is the news story out that YHOO is considering GOOG's proposal which would force MSFT's hand and make them raise the bid price in order to sway YHOO shareholders away from GOOG's proposal. i am inclined to believe it is trading at this small of a discount with all the potential regulatory problems because people feel that MSFT will have to increase the bid price. or it could be that no one really knows what price the YHOO buyout would close at. it sounds crazy but it happens. i remember back when PXP and PPP merged PPP was trading ABOVE it's buyout price on the last day of trading. i made a few bucks doing the arb play on it. a couple of guys in the office didn't get out of PPP the day the stock stopped trading and they didn't know exactly how much PXP they were going to receive for like 3 days. point being...deals where the shareholder can elect to get cash or stock get complicated. hope that makes some sense...let me know if it doesn't. edit....one more thing....the acquiring company generally trades down after a buyout is announced, especially if it is issuing new stock to do the buyout. in this case it is more uncertainty about whether this is a good purchase for MSFT.
interestingly, then, if you are correct, as/if Microsoft continues to trade down, the deal becomes less and less attractive to Yahoo, correct? u appear active in this area. i will bow to your experience.
