Mergers Arbs Balking at BAC/MER Deal

Merger arbitrage funds are seemingly balking at the Bank of America agreement to buy Merrill Lynch. As a result, the difference between the MER share price and the BAC offer is stuck up around 18%, which is very high.

Why so high? Four reasons (at least):

  1. There is no actual deal sheet publicly in place, so we have no idea how hard this thing will be to pull apart.
  2. Shareholders of both companies still have to approve the deal.
  3. Lots of people are nervous about how quickly the thing came together, with a day or so of diligence not exactly confidence inspiring.
  4. With the deal not closing until early 2009, no-one’s in a mood to take chances. After all, who knows what else will have happened by then.