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Consider this scenario: A firm acquires a strategically related target; there were no other bidding firms....

Consider this scenario: A firm acquires a strategically related target; there were no other bidding firms. Under what conditions, if any, can the firm that acquired this target expect to earn an economic profit from doing so?

Business   Operations-Management   
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Answer #1

When the firm acquires a target, there will be exchange of shares . During the process, the share price of the acquiring firm shouldn't fall due to price differential with the target firm. The price differential betweeen the fwo firms must be locked for M&A to be profitable.

Most commonly, profit from M&A activity is made through merger arbitrage. Thisinvolves taking a long position in shares of the target company on one hadn and a short position in shares of the acquiring company on the other, right after the move is announced

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