SAVE - Capitalizing On Capital One: Potential Merger Arb Returns With Discover Acquisition

2024-04-03 11:56:38 ET

Summary

• Capital One's proposed acquisition of Discover Financial currently offers a 15.2% merger arbitrage premium (plus dividends) in DFS shares for investors willing to wait for the deal to close.
• Merger arbitrage allows investors to profit from the price difference between the announcement of a deal and its closing.
• With higher rates and a healthy amount of M&A activity, some solid merger arb opportunities currently exist in the market for investors willing to bear antitrust risk.
• High-profile investors like Warren Buffett have quietly practiced merger arbitrage for decades.

“Give a man a fish and you feed him for a day. Teach him how to arbitrage and you feed him forever.”

-Warren Buffett, 1988 annual letter to shareholders.

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