You observe the following two pending mergers today and you are considering adding them to a merger arbitrage portfolio.
– List the trade(s) necessary to invest on the Aerojet (AJRD) merger. What is the merger arbitrage spread (rate of return) and approximate annualized return?
– List the trade(s) necessary to invest on the Extraction Oil (XOG) merger. What is the merger arbitrage spread (rate of return) and approximate annualized return?
– Are these trades eventually guaranteed to be profitable? Briefly explain two important things that could happen such that either of these positions will not be profitable.
Target (ticker symbol)—– Aerojet (AJRD)—- Extraction Oil (XOG)
Target Stock Price— $43.50—- $54.00
Acquirer (ticker symbol)– Lockheed (LMT)— Bonanza Creek (BCEI)
Acquirer Stock Price– $345.71— $49.53
Merger Consideration –$51 Cash– 1.1711 shares BCEI
Expected Closing Date 12/31/2021— 12/31/2021
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