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Shouldibuytwitter.com – A tiny takeover arbitrage model for TWTR

shouldibuytwitter.com

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Re: Shouldibuytwitter.com – A tiny takeover arbitrage model for TWTR

#11

Post by elicash »

rossdavidh wrote: post #7

Seems like "Chance that Elon Musk forces Twitter to divulge really embarrassing info about their business prospects during trial" should be in here. If he gets away with just paying the $1B, it makes a big difference to how much Twitter is worth without him. But, even if this info exists, there is a <100% chance of it coming out in trial; Delaware court may anticipate this strategy and try to stop it.

One of the questions is, "If Elon doesn't buy Twitter, what will the share price be?" If you think embarrassing info is likely, then you could answer with a lower price there. You can also factor whatever odds of him doing well at trial into your answer to other questions.

The formula itself doesn't require a direct answer to your question.

Re: Shouldibuytwitter.com – A tiny takeover arbitrage model for TWTR

#13

Post by shkkmo »

rckrd wrote: post #9
orlp wrote: post #6

Earlier quoted context omitted.

> Just a little app to model the arbitrage (gamble) opportunity. This isn't arbitrage at all. That is taking advantage of a price difference of an asset between two markets by buying and reselling it (nearly) simultaneously. If you are holding the asset longer than strictly necessary it isn't (only) arbitrage. Your intended action is just timing the market: buying stocks based on the belief they will soon rise in pri…

This is a classic merger arbitrage spread. [0] https://en.wikipedia.org/wiki/Risk_arbitrage

How do you short "Elon Musk" stock? You can only short companies the acquirer owns, not the acquirer himself, so this does not count as "merger arbitrage" under the definition you linked.

Re: Shouldibuytwitter.com – A tiny takeover arbitrage model for TWTR

#14

Post by Sebb767 »

rossdavidh wrote: post #7

Seems like "Chance that Elon Musk forces Twitter to divulge really embarrassing info about their business prospects during trial" should be in here. If he gets away with just paying the $1B, it makes a big difference to how much Twitter is worth without him. But, even if this info exists, there is a <100% chance of it coming out in trial; Delaware court may anticipate this strategy and try to stop it.

I think this is contained in the question of what the share price will be if Elon gets away. In fact, the math in this test only rounds to straight-forward if you either have a good idea of what the value of the stock will be if the deal falls through or you think is very unlikely.

Re: Shouldibuytwitter.com – A tiny takeover arbitrage model for TWTR

#19

Post by tedunangst »

shkkmo wrote: post #13
rckrd wrote: post #9

Earlier quoted context omitted.

This is a classic merger arbitrage spread. [0] https://en.wikipedia.org/wiki/Risk_arbitrage

How do you short "Elon Musk" stock? You can only short companies the acquirer owns, not the acquirer himself, so this does not count as "merger arbitrage" under the definition you linked.

This is a cash merger. You buy TWTR stock.

Re: Shouldibuytwitter.com – A tiny takeover arbitrage model for TWTR

#20

Post by tedunangst »

zeusk wrote: post #15
pxx wrote: post #4

This needs a discount rate knob. We're no longer in a low interest rate environment!

That discount would be built into either Elon's buy price or Twitter's nominal price if deal falls through.

I could believe that there is a 100% chance Elon is forced to buy twitter at $54, but if the deal takes 10 years to close, I'm not buying in at $38.
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