Grasmere Asset Management Case Scenario

Fund B: The long–short fund seeks to profit from the market inefficiencies that may arise as a result of such corporate events as asset divestitures, mergers and acquisitions, special dividend payments, and share repurchases. The fund utilizes software that searches news sources to identify target companies that are then analyzed by the firm’s analysts.

The analysts made the following points about the potential investments that Fund B might undertake. The fund should be interested in

  • investing in the shares of a potential acquirer, even in a consolidating industry;
  • taking a control position in a distressed company’s shares selling at a deep discount to its intrinsic value; and
  • using its expertise to make long-term investments involving companies in reorganization.
  • In the analysts’ discussion about Fund B’s potential investments, the point that is most accurate relates to?

The answer is “acquisitions in a consolidating industry”. However, regarding investing in mergers and acquisitions, do we suppose to buy the shares of company being acquired, rather than the acquirer? The shares of being acquired will increase in value after merge while the shares of acquirer will decrease in value after merge.