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):
- There is no actual deal sheet publicly in place, so we have no idea how hard this thing will be to pull apart.
- Shareholders of both companies still have to approve the deal.
- Lots of people are nervous about how quickly the thing came together, with a day or so of diligence not exactly confidence inspiring.
- 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.