The Impact of Deal Size on Shareholder Value, Fraud Risks, and Merger Arbitrage

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    How does the size of a deal impact value for shareholders in M&A? Considering Ivan Boesky’s insider trading using confidential information, do similar schemes still occur today, and how are they detected? Has anyone used merger arbitrage as an investment strategy, and what risks did you face?

    Mark Butikofer

    From reading the academic literature, the seller shareholders usually benefit more than the buyer shareholders, but if the acquire is very large compared to the target, shareholders of the acquiring company probably won’t even notice.

    In terms of deal size, my Fortune 100 company tends to pursue small bite-sized acquisitions which, as described in the first paragraph, don’t make an appreciable impact (positive or negative) on its financials. The academic literature tends to lean negative in the assessment that large deals actually destroy shareholder value.

    Unfortunately, insider trading using confidential information, and all kinds of shenanigans, are rife in the stock market today. The problem is that the SEC & Nasdaq don’t have the resources necessary to adequately monitor and enforce white collar crime.

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