Deal gamblers didn’t heed 2020’s lesson

Tsakos Energy Navigation

14/07/2022 16:39

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
    NEW YORK, July 14 (Reuters Breakingviews) - Hedge fund
goliath Millennium has shuttered East53 https://www.bloomberg.com/news/articles/2022-07-13/millennium-trading-team-east53-closes-portfolio-manager-to-exit,
 a division betting on mergers. Such arbitrageurs are suffering
as acquirers get cold feet and debt markets teeter, just like
during the early pandemic. But as 2020 showed, even risky deals
often close. East53 didn’t take the lesson to heart.   
    Times are tough in the merger arb business. Elon Musk wants
to scrap his $44 billion Twitter  TWTR.N  purchase. Tenneco’s
 TEN.N  $7.1 billion sale to Apollo Global Management  APO.N 
and software company Citrix System’s  CTXS.O  $16.5 billion sale
to Elliott and Vista Equity Partners looked wobbly for a while.
East53 bet on all three. 
    The disruption resembles 2020’s wave, when Forescout sued
buyer Advent International and LVMH  LVMH.PA  enlisted the
French government in a dispute with seller Tiffany. Stocks
dropped far below deal prices. That can quickly make positions
look like they are posting steep losses.
    Back in March 2020, arbs took a 10% hit initially, according
to HFR. But they ended the year up 5%. The business isn’t for
the faint of heart. Perhaps East53 just couldn’t roll with the
punches. (By Jonathan Guilford)

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 (Editing by Lauren Silva Laughlin and Amanda Gomez)
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