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?

2 responses total.

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.

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.

Response not possible - You must register and login before posting.

- Backtalk version 1.3.30 - Copyright 1996-2006, Jan Wolter and Steve Weiss