One of the great things about the stock market is there are a host of methods to try to use to make money on the markets. For most of us, we tend to more lucky than not, as in the case of mergers we already own the stock for different reasons or the company that is doing the buying we own because it pays dividends. The merger arbitrage occurs when one company has made a bid to take over another one with the prey trading well below the price that the suitor has offered. In an article Benj Gallander and Ben Stadelmann of the Contra the Heard Investment Letter examined two  drug retail companies Walgreen Boots Alliance who wishes to buy Rite Aid Corp for $9 a share.

This merger has been on the table for a long time and there are reasons why it is taking so long including the merger between the number one company and the number company three needs to be regulatory approval from Washington. There are issues with competition; overlap of stores and trying to sell them; and debt issues. Another issue is there does not appear to be any other suitors to raise the price. It is entirely possible with a new President elect administration is more favorable to  the deal than the former President so the bid was extended to after the new administration comes in.

The tough part of merger arbitrage is if the deal does not succeed, the price of the stock will fall and generally you are using borrowed money to heighten leverage. If you are going to do arbitrage know what are all the things that can or could go wrong and what will that do to the stock price.

Linking to dividend paying stocks, if the stock market things happen to companies all the time  they have strategic plans and some parts fit better than others. Divisions picked up now no longer fit as well or are as profitable or are not related to senior management as before. If you are going to participate in the merger game doing your homework before investing is the key – what is the upside? and downside? If you not comfortable with the risks it is time to look for alternatives. Companies which pay dividends are always seen as valuable for they generate cash flows.

There are more questions than answers, till the next time – to raising questions.