Merger Arbitrage, 2nd Edition

Chapter 8Legal Aspects

Merger arbitrageurs must combine an investor's mindset with that of a strategy consultant and a lawyer. This makes merger arbitrage an art rather than a science. It also implies that it is very difficult for quantitative models to replicate a merger arbitrage strategy. Most references on arbitrage focus on the mechanical aspect of merger arbitrage, which we discussed in Part I. Antitrust issues are also popular among writers about the topic. However, the full richness of the arbitrage process only becomes apparent when one considers the legal aspects.

Each country has its own set of rules that apply to domestic mergers, and within some countries different jurisdictions can coexist. For cross-border mergers, it is obvious that the laws of at least two countries will apply; with the growth of globalization, however, even mergers between to domestic firms that appear to be domestic affairs at first sight can fall under the jurisdiction of the competition authorities of foreign governments. Competition regulations will be discussed in Chapter 12 more fully. This section will address other legal aspects of the merger process.

Global merger legislation falls within three parallel legal universes (Figure 8.1). The classic distinction in common law and civil law jurisdiction is only partially useful in merger arbitrage. The overall legal framework in any country certainly follows the logic of civil vs. common law. However, when dealing with mergers this distinction ...