CHAPTER 1

1. Using the framework in Table 1.1, explain what types of arbitrage are presented by the following scenarios:
   1. A holder of metal inventory sells inventory in the spot market and goes long a future contract that is at an extreme contango.
   2. A bond dealer trades a negative net basis in bond future contract.
   3. A high frequency trader purchases a stock on one electronic trading venue and hits a bid on another exchange simultaneously.
   4. A Hungarian homebuyer takes out a mortgage denominated in Swiss francs.
   5. Bonus points: What is the name of the equivalent hedge fund trade to (d) above?

CHAPTER 2

Consider this merger announcement and review the recent trading activity.

1. Estimate a closing date.
2. Estimate a downside.
3. Calculate a spread.
4. Annualize the spread.

Item 1.01. Entry into a Material Definitive Agreement.

CHAPTER 3

1. Discuss the weakness of the implied argument in the following quote from a well-respected financial publication and explain what other macroeconomic factor will be more relevant to merger arbitrage investors.
2. Review the ranking in Table 3.8 and describe what happened in the stock markets during the years when merger arbitrage had its best and worst relative performance.

CHAPTER 4

1. Would a merger with a probability of closing of 75 percent be a candidate for a reverse merger arbitrage? Explain your answer.
2. Discuss why a board might seek a higher reverse breakup fee from a private equity buyer than from a strategic acquirer.

CHAPTER 5

1. Compare closing times of acquisitions and time to failure in the United States and other major jurisdictions.
2. How will withholding taxes on dividends influence merger arbitrage returns? In particular, consider a case where a tax treaty entitles an arbitrageur to a partial reclaim.

CHAPTER 6

Calculate the minimum number of shares that Websense, Inc. had to issue in its top-up option, given the parameters in its 8-K filing dated June 25, 2013. Assume 36,384,990 shares were outstanding at the closing of the tender offer:

1. Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
2. Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, Merger Sub commenced the Offer on May 28, 2013 to acquire the Shares at a purchase price of $24.75 per share, net to the seller in cash without interest thereon and less any required withholding taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 28, 2013, and the related Letter of Transmittal, each as amended or supplemented from time to time.
3. On June 25, 2013, Parent announced the completion of the Offer following the expiration of the initial Offer period at 9:00 a.m., New York City time, on June 25, 2013. According to Computershare Trust Company, N.A., the depositary for the Offer, 29,112,981 Shares were validly tendered and not withdrawn (not including 1,715,607 Shares tendered pursuant to notices of guaranteed delivery). Merger Sub accepted for payment all Shares that were validly tendered and not withdrawn, and payment for such Shares was made in accordance with the terms of the Offer. Merger Sub also exercised its top-up option (as described below), pursuant to which the Company issued a number of shares of Company Common Stock to Merger Sub, at a price per share equal to the Offer Price, in an amount sufficient to ensure that Merger Sub and the Company could effect a short-form merger under Section 253 of the Delaware General Corporation Law.
4. […]
5. Item 3.02 Unregistered Sale of Equity Securities
6. In order to complete the Merger, on June 25, 2013, pursuant to Section 1.4 of the Merger Agreement, Merger Sub exercised its top-up option (the “Top-Up”) to purchase shares of Company Common Stock, and the Company issued […] shares of Company Common Stock (the “Top-Up Shares”) to Merger Sub, at a price per share equal to the Offer Price. Merger Sub paid for the Top-Up Shares by delivery of cash and a promissory note to the Company. The Top-Up Shares, when added to the number of Shares directly or indirectly owned by Parent and Merger Sub at the time of exercise of the Top-Up, represented an amount sufficient to ensure that Merger Sub and the Company could effect a short-form merger under Section 253 of the Delaware General Corporation Law. The Top-Up Shares were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act, as a transaction by an issuer not involving a public offering.

CHAPTER 7

Review the timetable for merger closings in EMC/DELL. Based on the merger announcement reproduced here, estimate a closing date.

1. On October 12, 2015, EMC Corporation, a Massachusetts corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) among the Company, Denali Holding Inc., a Delaware corporation (“Parent”), Dell Inc., a Delaware corporation, and Universal Acquisition Co., a Delaware corporation and direct wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, among other things and subject to the conditions set forth therein, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent.
2. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Company common stock, par value $0.01 per share (“Company Common Stock”), issued and outstanding immediately prior to the Effective Time (other than shares owned by Parent, Merger Sub, the Company or any of its wholly owned subsidiaries, and other than shares with respect to which appraisal rights may be properly exercised and not withdrawn) will be cancelled and converted into the right to receive (i) $24.05 in cash, without interest (the “Cash Consideration”), and (ii) a number of shares of validly issued, fully paid and non-assessable shares of common stock of Parent designated as Class V Common Stock, par value $0.01 per share (the “Class V Common Stock”), equal to the quotient obtained by dividing (A) 222,966,450 by (B) the aggregate number of shares of Company Common Stock issued and outstanding immediately prior to the Effective Time, plus cash in lieu of any fractional shares (together with the Cash Consideration, the “Merger Consideration”). The aggregate number of shares of Class V Common Stock issued as Merger Consideration in the transaction is intended to represent 65% of the Company's economic interest in the approximately 81% of the outstanding shares of VMware, Inc. (“VMware”) currently owned by the Company, reflecting approximately 53% of the total economic interest in the outstanding shares of VMware. Upon completion of the transaction, Parent will retain the remaining 28% of the total economic interest in the outstanding shares of VMware. Because any shares with respect to which appraisal rights may be properly exercised and not withdrawn would not receive Class V Common Stock, any proper exercise of appraisal rights would decrease the aggregate number of shares of Class V Common Stock issued in the Merger and increase Parent's retained interest in the VMware business. Based on the estimated number of shares of Company Common Stock at the closing of the transaction, Company shareholders are expected to receive approximately 0.111 shares of Class V Common Stock for each share of Company Common Stock. Assuming, for illustrative purposes only, a valuation for each share of Class V Common Stock of $81.78, the intraday volume-weighted average price for VMware on Wednesday, October 7, 2015, Company shareholders would receive a total combined consideration of $33.15 per share of Company Common Stock. The value of the Class V Common Stock may vary from the market price of VMware given the different characteristics and rights of the two stocks. The rights of holders of the Class V Common Stock will be governed by (i) the Amended and Restated Certificate of Incorporation of Parent to be filed with the Secretary of State of the State of Delaware and made effective as of immediately prior to the Effective Time (the “Parent Certificate”), (ii) bylaws to be adopted by Parent's Board of Directors concurrently with the filing of the Parent Certificate (the “Parent Bylaws”) and (iii) a Tracking Stock Policy Statement to be adopted by Parent's Board of Directors concurrently with the filing of the Parent Certificate (the “Tracking Stock Policy Statement”).
3. […]
4. The completion of the Merger is subject to certain conditions, including, among others: (i) the Company Shareholder Approval, (ii) the absence of an order or law prohibiting consummation of the transactions, (iii) the effectiveness of the registration statement to be filed by Parent with the Securities and Exchange Commission for purposes of registering the shares of Class V Common Stock issuable in connection with the Merger and (iv) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of certain foreign antitrust approvals. Moreover, each party's obligation to consummate the Merger is subject to certain other conditions, including (a) the accuracy of the other party's representations and warranties (including the absence of a material adverse effect), (b) the other party's compliance with its obligations, (c) receipt by each party of an opinion of counsel, dated as of the date of the Merger, as to certain tax matters, and (d) the listing of the Class V Common Stock on either the New York Stock Exchange or NASDAQ.
5. Parent has obtained committed equity financing for up to $4.25 billion in the aggregate (from Michael Dell and a related trust, MSDC Denali Investors, L.P., MSDC Denali EIV, LLC, funds affiliated with Silver Lake Partners, and Temasek) and debt financing commitments for up to $49.5 billion in the aggregate from Credit Suisse, J.P. Morgan, Barclays, BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank Securities Inc., affiliates of Goldman, Sachs & Co. and RBC Capital Markets, for the purpose of financing the Merger and refinancing certain existing indebtedness. In addition to the above conditions to closing, Parent is not required to consummate the Merger until after completion of a marketing period related to its debt financing. The marketing period will not begin until receipt of customary required information and the satisfaction of certain conditions to closing. The obligations of the lenders under Parent's debt financing commitments are subject to a number of customary conditions. Parent's debt financing commitments will terminate upon the earlier of the termination of the Merger Agreement in accordance with its terms and December 16, 2016.
6. Under the terms of the Merger Agreement, the Company may solicit alternative acquisition proposals from third parties until 11:59 p.m. on December 11, 2015 (the “No-Shop Period Start Date”). There can be no assurance that this process will result in any alternative transaction proposals. After the No-Shop Period Start Date, the Company may not solicit or initiate discussions with third parties regarding other acquisition proposals and has agreed to certain restrictions on its ability to respond to such proposals as provided in the Merger Agreement. However, the Merger Agreement contains “fiduciary out” provisions, under which in certain circumstances the Company's Board of Directors may determine to change its recommendation of the Merger or terminate the Merger Agreement. The Company's Board of Directors is obligated to notify Parent in the event of a change in recommendation and to provide certain “match rights” to allow Parent an opportunity to modify the terms of the Merger Agreement in a manner that allows the Board of Directors to continue to recommend the Merger.

A few weeks after the announcement EMC stock traded at $25.40 and VMWare stock at $60.45.

1. What was the spread, absolute and annualized?
2. How reliable is this spread, considering that Class V shares and VMWare common stock will not be identical, but Class V will simply be a tracking stock?

CHAPTER 8

Consider this merger announcement from June 19, 2015:

1. Colt shareholder Fidelity leads GBP 1.7bn takeover offer
2. FMR and FIL (together, “Fidelity”) today announce their intention to make an all cash final offer through Lightning Investors Limited (“BidCo”) (an entity jointly owned by FMR and FIL) to acquire the issued and to be issued share capital of Colt Group S.A. (“Colt” or the “Company”) not currently owned by Fidelity (the “Offer”).
3. Under the terms of the Offer, Colt Shareholders will be entitled to receive 190 pence in cash for each Colt Share held. This price will not be increased. The Offer values the entire issued and to be issued share capital of Colt at approximately GBP 1.7bn.
4. […]
5. The Offer will be conditional upon, amongst other things:
   • the approval by a majority of Independent Colt Shareholders voting on a resolution to terminate the Relationship Agreement; and
   • BidCo receiving acceptances (which are not, where permitted, withdrawn) in respect of Colt Shares which, when aggregated with Fidelity's existing shareholdings in Colt, represent not less than 95 per cent. in nominal value of the issued or to be issued Colt Shares (or such lesser percentage not being less than 80 per cent. as BidCo may decide of the issued share capital of Colt) and not less than 95 per cent. (or such lesser percentage not being less than 80 per cent. as BidCo may decide) of the voting rights carried by those Colt Shares.
6. […]
7. BidCo has received irrevocable undertakings to accept or procure acceptance of the Offer and to vote in favour of the Shareholders Resolutions and against any Impeding Resolution from Ruffer LLP and Standard Life Investments in respect of 70,148,176 Colt Shares representing, in aggregate, approximately 23.4 per cent. of Colt's issued share capital held by Independent Colt Shareholders; and in aggregate, approximately 7.8 per cent. of Colt's issued share capital.

1. What percentage of the independent shareholders must vote in favor of the transaction in order to approve it?
2. Now assume this were a scheme of arrangement requiring the approval of 66²/₃ of shareholders. Under this scenario, what percentage of the independent shareholders needs to vote in favor of the transaction in order to approve it?
3. Now assume that no more than 4 percent of shareholders overall can vote against this merger. What percentage of independent shareholders would have to vote against to block the transaction so that the overall level reaches 4 percent?

CHAPTER 10

Evaluate risks in the following private equity transaction by reviewing the press release as well as a statement on the acquirer's website:

1. Campus Crest Communities (NYSE: CCG) announced that it has entered into a definitive merger agreement with affiliates of Harrison Street Real Estate Capital, LLC (“Harrison Street”) pursuant to which Harrison Street will acquire all issued and outstanding shares of common stock of Campus Crest in a transaction involving total estimated merger consideration of $7.03 per share, which amount includes net sale proceeds currently estimated to be valued at up to $0.13 per share (based on current exchange rates) from the separate sale of the Company's ownership interest in its evo Montreal joint venture (“Montreal Sale”). Including the assumption or repayment of various indebtedness of Campus Crest, the overall transaction value is $1.9 billion. The merger agreement was unanimously approved by the Board of Directors of the Company.
2. Under the terms of the merger agreement, the final merger consideration will be determined following the closing of the Montreal Sale, currently expected to occur before October 30, 2015, pursuant to a sale agreement with the Company's joint venture partner (the “Montreal Sale Agreement”). Assuming the Montreal Sale is consummated on the terms and conditions set forth in the Montreal Sale Agreement, the total per share consideration to be received by Campus Crest shareholders is estimated to be $7.03 per share, consisting of $6.90 per share in cash (the “Cash Consideration”), plus a pro-rata portion of the net proceeds from the Montreal Sale (the “Contingent Consideration”), currently estimated to be $0.13 per share based on current exchange rates.
3. The Cash Consideration and the Contingent Consideration could be considerably less if the Montreal Sale is not closed prior to the closing of the merger, or if the Company sells the Montreal joint venture interests on terms other than those currently provided for in the Montreal Sale Agreement. If the proceeds of the Montreal Sale are insufficient to fully satisfy the outstanding debt on the properties owned by the Montreal joint venture, then the Company would be obligated to contribute to the repayment of the deficiency in accordance with its outstanding guaranty of the debt, currently approximately CAD$56.0 million. In such event, the Cash Consideration per share would be reduced by a pro-rata portion of the amount necessary to discharge the guaranty.
4. If the Montreal Sale does not occur prior to the closing of the merger with Harrison Street, the merger agreement provides for the creation of a non-transferrable contingent value right (“CVR”) whereby shareholders will receive approximately $6.23 per share in cash at the closing of the merger (based upon current exchange rates) and one CVR per share. If the CVRs are issued, a representative of the shareholders will be authorized to conduct a sale of the Montreal joint venture and each CVR will represent a share of the net proceeds from the sale of the Montreal joint venture and release of the Company's guaranty of the joint venture's indebtedness. Though dependent upon the final sales price of Campus Crest's interest in the evo Montreal properties, the Company currently estimates the value of the CVR at approximately $0.80 per share based on the expected sales price of the Montreal properties and current exchange rates. If the net proceeds from the sale of the Montreal properties are lower than expected or are not sufficient to pay off the guaranteed indebtedness, then the value of the CVR could be substantially less.
5. The total estimated consideration represents a 24 percent premium over the most recent closing stock price on October 16, 2015, and a 35 percent premium over the Company's 60-day volume weighted average price.
6. Richard Kahlbaugh, Non-Executive Chairman of Campus Crest, said, “Beginning in October of 2014, our Board initiated an undertaking to simplify the business model, change executive management and maximize shareholder value through a comprehensive strategic review process. We are pleased to announce that after thoroughly analyzing numerous proposals, including a number of qualified potential buyers and a range of alternative transactions, the Board unanimously determined that this transaction is the best course of action in achieving our goal to maximize shareholder value. We are pleased that Harrison Street recognizes the value inherent in our portfolio of high-quality student housing properties.”
7. “As a significant owner of student housing assets, we are pleased to add these attractive properties to our portfolio. The need for high-quality off-campus housing continues to grow and we believe this sector has strong long-term fundamentals that will drive sustainable returns,” said Harrison Street co-founder, president and CEO Christopher Merrill.