Alternative Market Briefing

French asset manager Laffitte to seize the index arbitrage opportunity

Thursday, March 29, 2012

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David Lenfant By Benedicte Gravrand, Opalesque Geneva:

Merger arbitrage, as far as investment strategies go, is easy to understand.

"There is a deal announced, you buy the stocks with a discount, and if everything goes well, you get the premium," sums up David Lefant, partner in charge of business development at Laffitte Capital Management, a Paris-based asset management company.

Lenfant was recently interviewed by Matthias Knab for Opalesque TV.

Although the stock price of the target company in an M&A situation may come close to the offer price, there will always be a spread between the offer and the target price. This spread represents the risk that the merger will not go through, and merger arbitrage tries to profit from this spread. Merger arbitrage is possible since a target firm's stock will probably not reach the offer price until the deal is finalized and the stock is de-listed. Risk comes in the form of failed mergers. To conduct the strategy, the investor purchases the stock after the announcement and hopes to sell it after it approaches the offer price.

However, Lenfant adds, at Laffitte, this is not the way they do merger arb. During merger procedures, the deal has not yet......................

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