Analysis On Exploring Merger Arbitrage Opportunities In China’s Capital Market

Merger arbitrage is the investment activities in the M&A market, which attracts a large number of arbitrageur pouring into the market, buying the merged enterprises’stocks, selling the acquirer companies’ shares, profiting the trading spread by hedge mechanism. In foreign capital market, merger arbitrage is a mature and widely used investment strategy. However, in the domestic capital market, as China’s capital market established late, the market supervision is not strict and the system design is not perfect, the M&A market is characteristic of flooding inside messages, a long time completion of the merger and paying cash acquisition of the target corporation as the main mode. Therefore, the strategy and yielding of merger arbitrage in domestic capital market is different with that in foreign countries.This paper consists of six chapters. The first chapter is the introduction, presenting the background of the topic, literature review, the framework and the significance of the topic. The second chapter introduces the M&A development course and the present situation at home and abroad. The third chapter introduces the merger arbitrage theory and related concepts, explaining the efficient market hypothesis and its relation with merger arbitrage. The fourth chapter expounds merger arbitrage strategy, including types of merger arbitrage, strategy of merger arbitrage, factors affecting merger arbitrage. The fifth chapter is the case analysis, which mainly introduces two cases, namely HTC Gaoke’s acquisition with Baijin company and the case of Southwest Securities purchasing states securities. Through the cases, this chapter, on the one hand, illustrates the operation process of merger arbitrage, the factors affecting merger arbitrage, the relationship between the premium and merger arbitrage; on the other hand, it also announces the risk factors of merger arbitrage through the failed merger case. The sixth chapter is the conclusion and advice to the investors.Based on the theory of merger arbitrage and the analysis of typical cases in domestic market, this paper researches on the use of merger arbitrage strategy and its law of development, and finally draws the conclusion:although there is a certain gap between China’s capital market and developed capital market overseas, the domestic M&A transactions is still profitable through proper operation. Arbitrageur should grasp the opportunity, focus on acquisitions in the key industry and rationally utilize assets. Merger arbitrage will become a normal means of investment following the improvement of the capital market, which could be widely adopted by individual and institutional investors, as well as fund managers.