The Twitter Acquisition - Risk Arbitrage Analysis

In this video I will show you how to use a strategy called risk arbitrage to make 5-10% on the Twitter Elon Musk deal within a couple of weeks. Risk arbitrage strategy was originally highlighted by Ben Graham in his famous book, the Intelligent Investor. This strategy is used by hedge funds and professional investors. It’s a way to benefit from predictable events resulting for mergers and acquisitions, regardless of overall market movement. Basically, you will make money regardless of how good or bad the market will perform, as long as a certain event happens.

The Twitter deal is a good example. Elon buys twitter at 54.20. Current share price is 52, which gives a risk arbitrage of 2.20 per share, a nice 4% return as long as the deal doesn’t fall through from now until closing, which is expected in a couple of weeks. If the deal goes as expected, you make 4% in a month or so, but if it falls through you stand to lose a lot of money, maybe as much as 50%. The current share price is a bit below the deal offering to represent the risk that the deal can fail. You don’t catch the big gain speculating on the deal before it announced, but you get the low profit much less riskier spread on the closing of the deal.

Once closes – you will get cash of 54.20 per share.

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