Hi all, I'm trying to understand the mechanics of a merger arbitrage trade in the case of ICE and Black Knight, which announced in early May.
The deal:
ICE (Intercontinental Exchange) agreed to buy Black Knight (BKI) at $85, with an expected settle date of June '23. ICE currently trades at 102, and BKI trades at 69. The proration percentage is %80 cash and %20 stock.
The question: How do we lock in the $16 spread that currently exists between the $85 price and the $69 market price, the difference existing because of the chance the deal does not go through? I 'm thinking of it this way:
On $85, we get .8*85 = $68 in cash and $17 in stock. There is no need to short ICE stock to lock in the gain because the number of shares received is variable at this point- they did not explicitly say that we get .5 shares per BKI share owned, for example. Therefore, all we need to do is buy shares in BKI and sell the shares of ICE we receive to lock in the gain (assuming deal goes through). Is this right?
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