Globe and Mail- Hedge funds that make money by speculating on the success of takeovers may be the next round of casualties in the industry, not because of bad bets but because of a lack of anything to bet on.
Bloomberg News is reporting Friday that Tisbury Capital Management LLP plans to close up shop and hand the money in its fund back to investors because of there aren’t enough takeovers to play to make the game of merger arbitrage worthwhile. The value of deals so far this year has dropped to a third of last year’s level.
Merger arbitrage is a stalwart of hedge fund strategy. It involves buying shares of companies that are being taken over to profit from the difference between the market price and the buyout price. During the merger boom, funds made big bucks as the era of easy money led to many bidding wars that drove up prices. (Remember Dofasco, Inco and Falconbridge?)
