Profitability and Characteristics of Risk Arbitrage: Evidences from Leveraged Buyouts in the U'S' Su

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Profitability and Characteristics of Risk
Arbitrage Evidences from Leveraged Buyouts in
the U.S.Sue Fung Wang, Kehluh Wang, Chiu Nan
TsaiNational Chiao Tung University

• Discussed by
• Keng-Yu Ho
• National Taiwan University
• December 11-12, 2008
• NTU International Conference on Finance

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Summary of the Paper

• The determinants of risk arbitrage profit,
  specifically spread returns.
• U.S. LBOs from 1991-2006, with 234 successful
  deals and 65 failed deals.
• Annual average risk arbitrage return of 20.
• Spread return is positively related to offer
  duration and bid premium but negatively related
  to price revision.
• Reversal of target firm price is positively
  related to P/B ratio.

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Review Comments

• What makes LBOs special?
• Private transaction.
• Cash offer.
• Less hostile.
• Higher rate of success.
• Compare LBO results to general MA results.
• Motivation could be more focused.
• The definition of revision return
• Based on the example, would it be plus or minus
  10?

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Review Comments

• More control variables in the model.
• Sub-sample analysis.
• Before and after 2000.
• Further extension
• Corporate governance.