Yup, that's true, but it's not "engineered" - at least not explicitly. That walking of the price toward the takeover price - whether on the day the deal is announced or over time is a market driven reaction; a product of how likely the deal is to being completed successfully.
The phenomenon you mention, where a big premium slowly closes over time and particularly toward the closure of the deal, arises when risk arbitrageurs are cautious and, as positive signs become evident, they go long, cover short sales, and realign their options positions in accordance with such. This, of course, makes the deal spread close.
As previously mentioned, when deals are done w/mixtures of cash, classes of shares, or only accounting for certain percentages of the outstanding issue (or when caps and floors on market cap, for example, are introduced), risk arbitrage takes on another dimension: one requiring complex analytical systems, historical data, and stringent risk management.
LPS5 |
