| Grex > Finance > #12: A Stock Tip ??????? |
| A Stock Tip ??????? | 
Jun 17 16:15 UTC 1994 |
My finance instructor says that Gerber Baby Products Co is being acquired for $57 (?) a share in a few months. Yesterday it closed on the NYSE @ $51. Does that really mean a sure $6 profit (> 10%) for anyone who buys it now?
| response 1 of 2: |
Jun 17 20:25 UTC 1994 |
If he/she is relying on a takeover bid, keep in mind that takeovers fall through sometimes. The failure of an anticipated takeover of United Airlines basically caused the 1987 stock market collapse.
| response 2 of 2: |
Jun 18 00:44 UTC 1994 |
If there were no risk of a failure of the takeover, the Gerber stock would be trading at $57. The $6 discount is based on the risk assumed. Takeover arbitrage is a big business for some high-rollers. Basically they buy it at $51 and sell it at $57 when it's bought out. This works, except when it doesn't get bought out. Their profit is fair, because they assumed that risk.