Merger Masters Columbia University Press Publishers Since 1893 New York Chichester, West Sussex cup.columbia.edu Copyright © 2018 Kate Welling and Mario Gabelli All rights reserved E-ISBN 978-0-231-54891-5 Library of Congress Cataloging-in-Publication Data Names: Welling, Kate, author | Gabelli, Mario, author Title: Merger masters : tales of arbitrage / Kate Welling and Mario Gabelli Description: New York : Columbia University Press, [2018] | Includes index Identifiers: LCCN 2018022551 (print) | LCCN 2018025255 (e-book) | ISBN 9780231548915 (e-book) | ISBN 9780231190428 (hardback : alk paper) Subjects: LCSH: Arbitrage—Case studies | Consolidation and merger of corporations—Case studies | Investments—Case studies Classification: LCC HG4521 (e-book) | LCC HG4521 W38765 2018 (print) | DDC 338.8/30922—dc23 LC record available at https://lccn.loc.gov/2018022551 A Columbia University Press E-book CUP would be pleased to hear about your reading experience with this e-book at cup-ebook@columbia.edu Cover design: Noah Arlow Contents Acknowledgments Abbreviations and Wall Street Terms Introduction—Why This Book? by Mario J Gabelli Part I: The Arbs’ Perspectives CHAPTER ONE Guy Wyser-Pratte CHAPTER TWO Jeffrey Tarr CHAPTER THREE Martin Gruss CHAPTER FOUR Paul Singer CHAPTER FIVE Michael Price CHAPTER SIX Peter Schoenfeld CHAPTER SEVEN John Paulson CHAPTER EIGHT Paul Gould CHAPTER NINE George Kellner CHAPTER TEN Roy Behren and Michael Shannon CHAPTER ELEVEN Karen Finerman CHAPTER TWELVE John Bader CHAPTER THIRTEEN Clint Carlson CHAPTER FOURTEEN James Dinan CHAPTER FIFTEEN Drew Figdor CHAPTER SIXTEEN Jamie Zimmerman CHAPTER SEVENTEEN Keith Moore Part II: The View from the Other Side—The CEOs CHAPTER EIGHTEEN William Stiritz CHAPTER NINETEEN Paul Montrone CHAPTER TWENTY Peter McCausland Appendix I: Risk Arbitrage Decision Tree Appendix II: Deals Appendix III: A Note on Methods Index Acknowledgments KATE WELLING THE IMPETUS AND inspiration for this book were all Mario J Gabelli The concept is Mario’s, he convinced me to write it, and he made sure that the not-inconsiderable resources of GAMCO Investors were behind my efforts For the experience, I’m forever in Mario’s debt The principles of value investing are well known today, in large part because Warren Buffett’s monumental success has emblazoned them in the zeitgeist Think of this volume, as I do, as my old friend Mario’s way of highlighting the principles and practices of the other crucial arrow in his investment quiver, merger arbitrage, which has allowed him to translate Wall Street’s addiction to deals, deals, and more deals into low-risk, consistent, and non-market-correlated compound returns for clients The how, once shrouded in mystery, is today both accessible and pretty much infinitely adaptable, as these profiles illustrate Opportunities are multiplying, even as I write This volume would not have been possible, what’s more, without the generous cooperation of the arbitrageurs and industrialists profiled All extraordinary—and extraordinarily different—individuals, they took the time necessary to school me in their own perspectives on deal investing, and I thank them I also owe very special thanks to Regina Pitaro, for demystifying risk arbitrage; and to Paolo Vicinelli, Ralph Rocco, Willis Brucker, and the Gabelli merger-arb team for constant and congenial support Also to Christopher P Bloomstran, a great friend and better value investor, for constructive commentary on the manuscript If I know anything about the craft of financial journalism or the art of writing, it’s to the credit of my mentor—columnist and editor—the incomparable Alan Abelson Any mistakes are my own Finally, without the unwavering love and support of my husband of the past forty years, Don Boyle, and our sons, Brian and Tom, I doubt I’d have penned a word Abbreviations and Wall Street Terms 10-K 10-Q 13D 13F A$ AUM BA Basis point BC Bear hug Big Board Bips BKN AU CEO CFA CFO CIO CLO Convergence trade COO DA annual corporate financial report filed with SEC quarterly corporate financial report filed with SEC SEC form that must be filed within 10 days by any person or group acquiring a beneficial interest in more than 5% of a company’s securities SEC form required quarterly from institutional investment managers with discretion over $100 million or more of regulated securities, listing the names and sizes of holdings Australian dollars assets under management Bachelor of Arts one hundredth of one percent, used chiefly to describe differences in interest rates Boston College an unsolicited and richly priced takeover bid that is potentially so irresistably attractive to the target company’s shareholders that a management has little choice but to recommend that its shareholders accept it nickname for the New York Stock Exchange Wall Street slang for basis points ticker symbol of Bradken, an Australian mining equipment supplier chief executive officer chartered financial analyst chief financial officer chief investment officer collateralized loan obligation CLOs are derivatives, a form of securitization where payments from multiple middle sized and large business loans are pooled together and passed on to different classes of owners in various tranches A form of arbitrage Buying one asset forward, for future delivery, and selling a similar asset forward for a higher price, in expectation of profiting from the eventual convergence of their prices chief operating officer district attorney DIP Loan DIY DJIA DLJ DOJ EBITDA ETE ETF EU FCC FDA Finco FTC GAAP Greenmail GM GMAC Highly confident letter HNG IFB IPO ISS JD LBO LTV M&A MBA debtor in possession financing typically granted during pendency of a bankruptcy case is usually considered senior to all other debt, equity, or other securities of a company In other words, holders of DIP debt generally go to the front of the line when a bankrupt company’s obligations are repaid or it is liquidated it yourself Dow Jones Industrial Average, or “the DOW,” a somewhat dated shorthand for “the market” Donaldson, Lufkin & Jenrette Department of Justice earnings before tax interest, taxes, depreciation, and amortization Energy Transfer Equity’s ticker symbol exchange traded fund European Union Federal Communications Commission Food and Drug Administration financial company, a generic term for a corporate financial subsidiary Federal Trade Commission Federal agency with oversight of many corporate transactions generally accepted accounting principles, standardized accounting rules set out by the Financial Accounting Standards Board, invariably more stringent than anything a company reports as “adjusted earnings” Akin to blackmail, a premium a company pays to buy its own shares back from a potential hostile acquirer General Motors General Motors Acceptance Corp An aggressive financing tool invented by Drexel Burnham in 1983 to permit its corporate raider clients to launch LBO bids before their debt financing was fully in place ticker symbol and nickname for Houston Natural Gas when it was a listed company Ivan F Boesky’s IFB Managing Partnership initial public offering Institutional Shareholder Services, a proxy advisory firm Juris Doctor leveraged buyout Originally the 1960s conglomerate Ling-Temco-Vought, the corporation was the nation’s ​second-largest steelmaker at the time of its 1986 bankruptcy filing mergers and acquisitions Master of Business Administration MO NYSE NYU ODP P/E P&G Pac-Man defense PE PhD PM Poison pill defense prop desk Proxy Statement QE R&D REIT S&P 500 SEC subs T-Bill TIG TWC UAL modus operandi New York Stock Exchange New York University Office Depot stock ticker price/earnings ratio One fundamental measure of a stock’s price relative to corporate profits Procter & Gamble Like in the video game, this refers to a takeover defense in which the target company attempts to turn the tables on a would-be hostile acquirer by trying to acquire it private equity Doctor of Philosophy portfolio manager A shareholder rights plan, a defensive tactic in which a corporate board gives shareholders the right to buy additional shares at a discount if a potential acquirer buys a certain number of shares, thereby diluting the potential bidder’s stake and increasing the cost of any merger proprietary trading desk at a bank, brokerage firm, etc A definitive proxy statement must be filed by companies with the SEC and distributed to shareholders prior to soliciting shareholder votes on a merger or some other corporate events It includes information about the merger, management and board compensation and potential conflicts of interest, among other deal specifics quantitative easing research and development real estate investment trust Standard & Poor’s 500 Index, often “the S&P” as shorthand for “the market” Securities and Exchange Commission Wall Street’s federal regulator corporate subsidiaries U.S Treasury Bills are short-term debt obligation backed by the U.S government with a maturity of less than one year, sold in denominations of $1,000 up to a maximum purchase of $5 million Also referred to on Wall Street as “the risk-free rate.” Tiedemann Investment Group Time Warner Cable The stock ticker symbol (and long-time Wall Street shorthand) for United Continental Holdings, the parent company of United Airlines and its predecessors Previously, UAL Inc.was the name of the airline’s parent, except for a brief time in 1987, when it was Allegis Corp Dekkers, Marijn, 269 Delaware, 186, 272, 275, 290–92 Dell, 59 Delphi Automotive, 60, 67–70 Den of Thieves (Stewart), 24 derivatives, 169 D E Shaw & Co., 131 desire, 171–72 Deutsche Telekom, 96, 97 digital revolution, 16 DiLeo, Phil, 117, 119 Dillon Read, 205, 206 Dinan, Jamie, 9, 178; on antitrust, 183–84; cockroach theory, 184–85; on contracts, 185; on controlling downside, 187–89; on deals, 183; education of, 179, 180, 182; family of, 188; houses of, 188; on information, 184; internship of, 181; on judgment, 182; Kellner and, 180–81; lifestyle of, 188–89; on merger arbitrage, 182; on risk perceptions, 184; on risk/reward, 182–83, 187; on safe spreads, 186–87; values of, 189 Dingman, Michael, 255–61, 270 Dingman’s Dogs, 260–61 DirecTV, 15 discipline, 172, 201, 226, 266–67 disciplined risk analysis, 121–23 disciplined risk management, 179 distressed debt cycle, 168, 209–10 distressed investing, 94–96, 153 distribution of information, 93 diversification, 48, 162 DLJ See Donaldson Luftkin & Jenrette DMG Mori Aktiengesellschaft, 72 DMG Mori Co Ltd., 72 Dodd, David, Dollar Thrifty Automotive Group, 188, 196 Donaldson Luftkin & Jenrette (DLJ), 63, 65, 119, 147, 179, 180, 220 Double Black Diamond, 165 Dow Chemical, 106–7, 108 downside, 187–89, 209 Drexel, 45, 107, 112 Drexel Burnham, 13, 76, 77, 85 driverless cars, 16 Drucker, Peter, 265 due diligence, 278–79, 296 Dufour, Pierre, 295 DuPont, 15 Dylan, Bob, 16 earnings, 88 earnings model, 169 ego, 93, 126, 145, 149, 171, 190, 201 Eichenwald, Kurt, 31–32 Elkann-Agnelli family, 115 Elliott Management Corporation, 58–63, 67, 68, 70, 71–73, 275, 293, 294 El Paso Gas & Electric, 67 EMC Corp., 59 employees, 279 Endo, 105 Energizer, 234, 238, 240 Energy Future Holdings Corp, 59 Energy Transfer, 176–77 Energy Transfer Equity, 176–77 Engelhardt, Werner, 34 Enron, 31, 139 Enthoven, Alain, 263 Equity Corp, 259 ESB, 52 ethics, 65–66, 175 Eton Park, 272, 287 Euro Partners Arbitrage Fund, 33 European Union, 1, 198 Evans, Thomas Mellon, 80 event overlay, value investing and, 210–11 Eveready Battery Co., 238 experience, 12, 82, 86, 139–40, 199–200 faking it, 146–48 Fast Money, 142, 143 Faulkner, Peter, 95, 96 FCC, 137 fear, Figdor on, 192–93 Federal Trade Commission, U S., 1, 103–4, 212, 223–24, 282 Federated Department Stores, 145 fees, 84–85 Ferrari, 115 Figdor, Drew, 190; background of, 191; on capital preservation, 197–99; on deals, 197; education of, 191; family of, 191, 199; on fear, 192–93; hands-on approach of, 196; on index hugging, 193–94; on interest rates, 192; on LBOs, 198–99; portfolio of, 196, 198, 199, 201; on research, 196–97; risk and, 193; on risk arbitrage, 190, 197–98; on risk/reward, 197; on risk within limits, 195–96; on spreads, 192–93, 201; style of, 193–94, 196; on testing theories, 199–200; Tiedemann and, 191 financial crises, 85, 114, 184 financial theories, 92 financing, 88, 140 Finerman, Karen, 141, 143; background of, 141–42; credibility of, 142; on deals, 149; early positions of, 145; education of, 142; on faking it, 146–48; family of, 142–43; fashion of, 143; gender and, 142; gut instinct of, 145; LBO and, 145; on motivation, 150–51; options strategies of, 146; research of, 145, 147; Schwarz and, 142–45, 146, 147, 148; on spreads, 148; survival lessons of, 148–50; work of, 144–45; Wyser-Pratte and, 147 Finerman’s Rules: Secrets I’d Only Tell My Daughters About Business and Life (Finerman), 142 Fisher Scientific International Inc., 254, 260, 261–62, 264, 266–71 “Five Deadly Business Sins, The,” 265 fixed brokerage commissions, 12 Fletcher Building Ltd., 214–15 Flowers, Chris, 185 Flynn, Chris, 147 Fortune, 26, 27, 258 Franklin Resources, 75 fraud, 32 free bet, 155 Freeman, Robert, 24 Freitag, Sebastian, 35 Freitag & Co., 35 Frères, Lazard, 31 “Friday Night Specials,” 111 Friedman, Milton, 44 Fundstrat, 232 Gabelli, Mario, 78, 79, 119 Gabelli Arbitrage Fund, 3, Gabelli Asset Management, 11 Gabelli Associates Fund, Gabelli & Co., 79 Gaines dog food, 54–56 Gallagher, James, 219 gambling, principles vs., 155–56 GAMCO Investors Inc., 3, 5, 11, 14 game theory, 92 gas, 127, 176, 272, 274, 280 GE, 98, 159, 198 gender, 142, 150–51 Geneen, Harold, 46 General Motors, 60, 68–69, 70, 265 genius, common sense and, 138–39 Gerber Products, 29–30 Getty Oil, 205 Ghasemi, Seifollah, 293–95 Glass Lewis, 97 global assets, 15 Globalstar, 210 GMAC, 68 Goldman and Salomon, 87 Goldman Sachs, 24, 35, 41, 45, 52, 220, 272, 284 Goldstein, Neil, 206–7 Gordon, Michael, 204 Gould, Paul, 109; background of, 110; on Boesky, 112–13; on common sense investing, 113–14; as contrary, 115; on crisis management, 112–13; education of, 110; on leverage, 114–15; on maturity, 110–11; on risk arbitrage, 109–11 governance, of corporations, 33, 34, 276, 286, 289 Graham, Ben, 2–5 Gray, Harry, 52 Great Books of the Western World, 262 “Greatest Trade Ever, The,” 100 Great Recession, 14, 277 Great Western Sugar, 29 Great Western United, 29 Green, Frederick W., 129, 132, 136 Greenberg, Ace, 100, 220 Greenhill & Co., 107 greenmail, 13, 30–31 Green & Smith Investment, 130 Greiner, Nick, 214 growth, 88 Gruss, Joseph, 101, 152, 155, 219 Gruss, Martin, 49; activism of, 54–55; Anderson Clayton & Co and, 54–57; background of, 52; Bader and, 155–58; on deals, 52–53; discipline of, 53–54; early days of, 50; education of, 51; father of, 51, 53; office of, 50; Paulson and, 50–51, 158; principles of, 155–56; Quaker Oats and, 54–57; on risk arbitrage, 49–50; risk-aversion of, 53–54 Gruss Capital Management, 50 Gruss & Co., 51, 52, 53, 101, 154, 155, 219 Gruss Petroleum, 51 GTE Corp., 144 Gulf Oil, 12, 180 Halcyon Capital Management LP, 153, 154, 159, 160–61, 162 Halliburton, 82–83, 98, 183 Hamilton Investment Letter, 64 Harbert Corp., 158 Harder, Lewis, 79 Harmon International, 185 Hart-Scott-Rodino application, 133 Harvard, 101, 111, 113, 180, 204 hedge funds, 84–85, 137, 170 Heine, Herzog, 78 Heine, Max, 77–78 Heine Fishbein, 78 Heine Securities Corp., 75 Henley Group, 254, 257, 258, 260, 261, 270 Hennessy, Edward L., Jr., 254–56, 258 Henning, Peter J., 284 Hertz, 157, 187–88, 196 Hewlett Packard, 261 highly confident letters, 111–12 high-risk deals, 173 Hilton, 157 Hitachi Construction Machinery, 215 HNG See Houston Natural Gas Hodges, Brian, 214 Honeywell, 198 hope, 187 horizontal industry consolidation, 13 Hostess, 238 hostile deals, 149, 249, 287–88 Houston Natural Gas (HNG), 19, 30–31 hubris, 126 Huck, Paul, 285 Hudson General, 11 Huebsch, Ron, 169 human nature, 223 humiliation, 126 humor, 47–48 Hunter, Sam, 41 Hurwitz, Charles, 169 IBM, 261 Ichan, Carl, 12 IFB Managing Partnership, 154–55 imagination, risk and, 164, 175 IMED Corp., 260 Immelt, Jeff, 79 Inco, 52 incremental position-sizing rule, 187–88 index fund, 140 index hugging, 193–94 industry multiple, 270–71 information, 99, 179, 181, 184 innovation, 88 inside information, 113, 133 insider trading, 6, 24, 27–28, 47–48, 111–12, 181, 284–85 instant gratification, 243–44 institutional hypocrisy, 288–89 insurance, 160, 172 intellectual curiosity, 175 intellectual flexibility, 125–26 interest rates, 81, 84, 134, 273; compounding, 6, 153, 217, 221; Figdor on, 192; low, 192; short-term, 13, 167; zero, 81, 88, 120, 148, 192 internationalization, of capital markets, 127 International Mining Corp., 79 International Nickel, 52 Internet bubble, 10, 13 InterNorth, 31 Interstate Bakeries, 238 intrinsic value, 172 investing: common sense, 113–14; distressed, 94–96, 153; event overlay and value, 210–11; global, 72; international, 133; principles of Singer, 62–63; psychology and, 9; Schoenfeld on M&A in distressed, 94–96; situational, 71 investors, 5, 6, 12–14, 79–82, 96 IPO market, 16 Irvine Ranch, 111 ISS, 97 ITT, 12 I’ve Got a Secret, 40 IWKA, 34–35 Jacobs, Harry, 25 Jacobson, Hans, 78 JetBlue, 194 Johnson, Lyndon B., 25 Johnson & Johnson, 267 John Wiley & Sons, Inc., 218 JPMorgan, 138 J Ray McDermott & Co., 26 judgment, 86, 182 junk bonds, 205 Justice Department, 137, 139 KDC Merger Arbitrage Fund, 222 Kellner, George, 116, 220; background of, 117; on being different, 124–26; Dinan and, 180–81; on disciplined risk analysis, 121–23; discovering risk arbitrage, 118–19; early days of, 119–20; education of, 117–18; family of, 119; father of, 117–18; harrowing experiences of, 121; on leverage, 121; Moore and, 222; on Pfizer, 123–24; portfolio of, 117, 120–21, 124; on risk arbitrage, 116, 124–26; on securities analysis, 118–19; on tax rules, 120–21 Kellner Capital, 117, 222 Kellner DiLeo & Co., 117, 144, 180–81, 182 Kennedy, John F., 41 Kidder Peabody, 24, 45, 114 Klarman, Seth, 79 Koch Industries, 214 Kodak, 265 Korean National Pension Service, 60, 61, 62 Koslowski, Dennis, 15 Kraft, 57, 101 Kravis, Henry, 185 Kuhn, Loeb & Co., 51 KUKA, 35–36 Lampert, Eddie, 186 Lasker, Bunny, 23–24 Lasker, Stone & Stern, 23 Lawrence, Mary Wells, 234 laws, 92, 200, 205, 208–9, 286 lawyers, 14, 242–43, 248 Lazo, Shirley, LBO See leveraged-buyout Lee, Jay Y., 61, 62, 72–73 Lee, Tom, 185 Lee family, 60–61 Lehman Brothers, 208 Leslie, John, 24, 25 leverage, 102–3, 114–15, 121, 138, 167 leveraged-buyout (LBO), 13, 50, 85, 134; Bader and, 156, 158; boom, 45; Carlson on, 174; Figdor on, 198–99; Finerman and, 145 Levy, Gus, 45, 118 Levy, Leon, 101 Lew, Jacob, 124, 199–200 L F Rothschild, 204, 205 Liberty Latin America, 15 Linde, 278 Lipton, Martin, 30 liquidations, 14, 159 liquidity, 84, 167, 211 listed companies, 265–67 Litespeed, 202, 203, 207–8, 213, 214 Litespp, 212 Liveris, Andy, 107 Lockheed Martin, 139 Loeb, John, 12 Loeb Rhoades, 12, 79 Long-Term Capital Management, 14, 137, 182, 207 long-term commitment, 289 long-term returns, 266 long-term value, 250 Look, 40 Lowenstein, Roger, 182 low-rate-of-return-type strategy, 138 LTV Corp., 67, 71 luck, 250, 251 Lufthansa, 11 M&A See mergers and acquisitions Macy’s, 67, 145 Madison Fund Inc., 118, 120 Madoff, 136 Malone, John, 15, 110, 136, 232 management, 1, 29, 242, 243, 249, 251 Manitowoc, 210 Marietta, Martin, 255 Maris, Roger, 121 market cycles, 139, 179 market liquidity, 211 market penetration, 267 market speculation, 176–77 Matthews, M D., 31 Maxxam Group, 169 MCA, 12 McCausland, Peter, 272; acquisitions of, 273, 278–79; on activism, 276; adversaries of, 283–84; Airgas and, 274–83; background of, 273; conservative values of, 279–80; on control, 277; on due diligence, 278–79, 296; estate of, 273–74, 280; family of, 274, 279; farm of, 280; friends of, 293–94; Ghasemi and, 293–95; on insider trading, 284–85; on institutional hypocrisy, 288–89; justice and, 293–94; losing vote, 289–90; Paulson and, 272; on risk arbitrage, 272–73; risk arbitrage and, 285–86; secret meetings of, 295–96; on shareholders, 287–88 McDonald & Co., 183 McGlade, John E., 282–83, 292 McGraw-Hill, 30 McKensey & Co., 41 McNamara, Robert, 256, 263 Medivation, 186–87, 212 Medtronic, 196 Meister, Paul, 268, 270 Mercedes, 210–11 merger agreements, 133, 149, 174, 176, 195 merger arbitrage: Bader on, 153; cycles, 139; Dinan on, 182; diversification and, 162; index fund in, 140; information in, 184; spreads and, 192 See also risk arbitrage Merger Fund, 129–30, 135, 139 merger mania, 25–26 Merger Mania (Boesky), 6, 26, 168 merger proxies, 87 mergers and acquisitions (M&A), 2, 8; activity chart, 10; Carlson on, 170–71; cultural issues in, 134; debt and, 13; in distressed investing, 94–96, 153; fifth wave of, 9; law and, 200; management and, 249; Price on, 75; Schoenfeld on, 98; tactics, 193; value creation in, 171 Merkel, Edward, 118 Mesa Petroleum, 179–80 Messier, Jean-Marie, 95 MetroPCS, 96, 97 Metropolitan Capital Advisors LP, 142, 145–46, 147–48 Meyer, Priscilla, 28 MFP investors, 81 Midea Group, 36 Milken, Michael, 45, 67, 112, 114 Milken/Drexel conference, 198–99 Milwaukee Bucks, 188 Mindich, Eric, 272 mistakes, 10–12 MKM Partners, 218, 222 mobile devices, 11 Molinini, Mike, 277 Monetary History of the United States, A (Friedman), 44 Montgomery Ward, 159–60 Montrone, Paul, 253; on advertising, 263; background of, 256; on CEOs, 264–65, 268; credit and, 266; criteria for business, 266; C-Suite and, 255–57; Dingman’s Dogs, 260–61; on discipline, 266–67; early reality check for, 263–64; early years of, 259–60; education of, 256, 262, 263; focus on returns, 268–69; on his own, 261–63; lessons of, 264–65; on listed companies, 265–67; portfolio of, 266; sales strategy of, 262; strategy of, 269–71; valuation and, 269–70; on Wall Street, 265; Waste Management and, 261 Moon Jae-in, 60 Moore, Keith, 217; on Boesky, 222; career of, 218; courtroom drama of, 223–24; on deals, 225; on discipline, 226; education of, 218, 219, 222, 225; family of, 218–20; Gallagher and, 219; Kellner and, 222; on mutual funds, 221; at NYSE, 220; portfolio of, 220, 225, 226–27; on risk arbitrage, 221, 222–23, 225–26; teachable moments of, 225–27 morality, 89, 90 Morgan Stanley, 52, 96, 107, 154 Morrill, Vaughn, 39 motivation, Finerman on, 150–51 Mulcahy, Pat, 240 Mulheren, John, 156 Munger, Charlie, 80 Murray, Roger, Musial, Stan, 121, 122 Musk, Elon, 88 mutual funds, 217, 221 Mutual Shares, 75, 78, 86, 87 Nabisco, 155 Nash, Jack, 42, 101 National Bank of Hungary, 117 nationalism, 61 Nazis, 20, 51 NCR, 146 Nestle, 234 Neuberger Berman, 42, 219, 220, 221 New Hampshire Oak, 258 New York Post, 28 New York Stock Exchange, 7, 23–24, 120, 218, 219 New York Times, 55, 258, 284 non-directional strategies, 169–70 Northrop Grumman, 139 Obama administration, 60, 68, 82, 98, 103, 124, 183 O’Connor, Sandra Day, 203 Odyssey Partners, 101 Office Depot, 82, 103–4, 183, 211, 212, 222, 223–25 oil, 51, 127, 128, 176 Omnicom Group, 134 Oncor Electric Delivery Co., 59, 71 Operation Match, 38, 39–40 Oppenheimer, 42, 43, 207 opportunistic thinking, 86–87 opportunities, Stiritz on, 236–38 options, 115 organizational charts, 240 outsiders, 247 Pacific Equity Partners, 214 PaineWebber, 191 Park Geun-hye, 60 partnerships, 32 passion, 175 patience, 34, 47–48, 198 Paulson, John, 53, 99, 246; activism of, 105–6; background of, 100; at Boston Consulting Group, 101; Dow Chemical and, 106–7, 108; education of, 100; on FTC, 103–4; Gruss, M., and, 50–51, 158; on leverage, 102–3; McCausland and, 272; obstacles overcome by, 100–101; portfolio of, 102–3; on risk arbitrage, 102 Paulson & Co., 100, 103, 107, 287 peer-group analysis, 34 Penn Central, 42 Penn National Gaming, 199 Pennzoil, 205 Pentagon, 139 perception, 91 perception, of risk, 184, 191, 192, 193, 194 personality, 179 Perspecta Trust, 266 Pfizer, 104–6, 123–24, 148, 187, 199, 200, 210, 212 Philip Morris, 101 Philips Industries, 158 physical stamina, 66 Pickens, T Boone, 179–80 Pitaro, Regina M., 5–6, 11, 15 Platform Specialty Products Corp., 87 Platinum, 69–70 Plaza Hotel, 181 politics, deals and, 162 Pollack, Yakil, 158–59 portfolio: of Bader, 159; diversity, 138, 167, 193; of Figdor, 196, 198, 199, 201; leverage and, 138; management, 173; model, 185; of Montrone, 266; of Moore, 220, 225, 226–27; risk arbitrage, 140; of Zimmerman, 212–13 positions: limits, 226; sizing, 82–83, 86, 187–88; Zimmerman on, 213 Post, 209–10, 234, 246, 247 Post Holdings, Inc., 232–33, 250–51 Potier, Bent, 295 Price, Michael, 74; activism of, 75; background of, 76–77; bumps in the road, 78–79; on deals, 83–84; donation to University of Oklahoma, 77; education of, 76–77; father of, 77, 78; on M&A, 75; obsession with risk arbitrage, 77–78; opportunistic thinking, 86–87; portfolio of, 81; on risk arbitrage, 75; risk arbitrage lessons of, 82–83; on risks of risk arbitrage, 83–84; on smart investors, 79–82; on valuation, 74; on Wall Street, 75 principles, gambling vs., 155–56 private companies, 265 probabilistic thinking, 184 productivity, 252 profit and loss statements, 239 Pru-Bache, 30–33 Prudential Insurance, 32 PSAM See P Schoenfeld Asset Management P Schoenfeld Asset Management (PSAM), 90–97 psychology, 9, 178–79 public announcements, 132 public companies, 265–67 public filings, 110 Publicis Groupe, 134 Public Service New Hampshire, 67 public utilities, 133 Purina Mills, 238, 241 Puritan Bennett, 278 Quaker Oats, 54–57 quantitative overlay, 131–32, 173 Radnor, 274, 276 Rainwater, Richard, 169 Ralcorp, 209–10, 234, 239, 240, 241, 244–45, 248, 250 Ralcorp Holdings, 232–33 Ralston Purina, 55–56, 233–34, 236–39, 240, 241, 247 randomness, 251 rate of return, 120, 210 R&D See research and development Read, Ian, 104 Reagan, Ronald, 43, 44 realism, 237 “Reasons for the Merger,” 87 Red-D-Arc, 278 regulations, 124, 149, 196, 198, 200 relative value arbitrage, 165, 185 reputation, 91–92 research, 193–94, 196–97, 202 research and development (R&D), 114, 133 restructuring, 211 returns, 6, 93–94, 120, 138, 172–74, 179, 198, 210, 266, 268 Rheinmetall, 34 Rhone Capital, 211 rights, of shareholders, 29 risk-adjusted returns, 179 risk-adjustment, 140 risk arbitrage, 1, 165; bankruptcy and, 211; Behren on, 127–28; as being different, 124–26; “black magic” of, 6; Carlson and, 168–69, 171–72, 174–75; compounding and, 217, 221; defining, 2; discipline of, 8–9; Figdor on, 190, 197–98; four horsemen of, 26–27; Gould on, 109–11; Gruss, M., on, 49–50; Kellner discovering, 118–19; Kellner on, 116, 124–26; lessons of Price, 82–83; liquidity and, 84; literature on, 8; McCausland and, 285–86; McCausland on, 272–73; Moore on, 221, 222–23, 225–26; Paulson on, 102; portfolio, 140; position sizing in, 82–83; Price on, 75; psychology and, 178–79; rate of return, 120; risks of, 83–84; Shannon and, 128, 129; simplicity of, 7; sourcing of ideas in, 175; Tarr discovering, 41–42; value proposition for, 172; Wall Street and, 84; women in, 150; Wyser-Pratte and, 28; Zimmerman on, 208 Risk Arbitrage (Wyser-Pratte), 6, 12, 22–23, 27, 77, 147 Risk Arbitrage: An Investor’s Guide (Moore), 218, 222 Risk Arbitrage Decision Tree, 15 Risk Arbitrage Partners, 38, 39, 43, 47 risk arbitrageurs (arbs), 2, 26 See also specific people risk/reward, 156; Dinan on, 182–83, 187; Figdor on, 197; profile, 134, 166; ratios, 162; Zimmerman and, 209 risks, 122; assessment, 93; aversion, 53–54; Figdor and, 193; imagination and, 164, 175; incremental, 139; within limits, 195–96; management, 125, 179, 208–9, 223; perception of, 184, 191, 192, 193, 194; of risk arbitrage, 83–84; Schoenfeld on returns and, 93–94 Rittenhouse, 294 Ritter Financial, 78 robotics, 35–36 Rocco, Ralph, 11 Roden, John van, 287 Rodkin, Gary, 245, 246 Rohm & Haas, 106–7, 108 Rosenthal, Richard, 26–27 Rothschild, L F., 24 Roundtable, 8, 10 Royhatyn, Felix, 45, 46 Rubin, Robert, 26–27, 41, 45, 100, 118, 180, 220 Rukeyser, Lou, 66 rumors, 53, 194 Russian debt crisis, 138, 147 Ruth, Babe, 121, 122 Rutland Tool, 279 SABMiller, 60 safe spreads, 186–87 safety, 125 sales, 263 Salix Pharmaceuticals, 105 Sallie Mae, 185 Salomon Brothers, 27 Samsung C&T Corp., 60–62, 72 Samsung Electronics, 72 Sanofi, 186–87 Saunders, Brent, 104 Savient Pharmaceuticals, 195 savings and loan (S&L), 146, 147 Schiff, Stanley, 76, 77 Schoenfeld, Peter, 89; activism of, 89, 90; background of, 91; Biomet and, 97–98; on cudgels, 96–97; education of, 91; on ego and excitement, 93; on M&A, 98; on M&A in distressed investing, 94–96; presence of, 90; on reputation, 91–92; on risks and returns, 93–94 Schuschnigg, Kurt von, 236 Schwarz, Jeffrey, 142–45, 146, 147, 148 science, 261 seasoned liquidations, 159 SEC, 5, 87 securities analysis, 3, 118–19 securities regulations, 32 self-reliance, 249 Sempra Energy, 59 Serpent on the Rock (Eichenwald), 31–32 Seward & Kissel, 44 Shalit, Gene, 40 Shannon, Michael: on avoiding surprises, 134; Behren and, 127, 128, 131; career of, 129; on confidence, 136; on deals, 128; at D E Shaw & Co., 131; education of, 129; on research, 133; risk arbitrage and, 128, 129 shareholders: capitalism and, 243–44; conflicts, 34; McCausland on, 287–88; rights of, 29–30; Stiritz on value of, 231–32, 248, 252; value gaps and, 34; wealth of, 249 Sharpe ratio, 132, 165 Shire Pharmaceuticals, 161, 162, 195–96, 197, 211 Shire Plc., 123, 124 short-term interest rates, 13, 167 short-term results, 279 Shumway, Forrest N., 255 Siegel, Martin, 24, 45, 114 Sigdo, 215 Sigma-Aldrich, 267 Signal Cos., 255–56, 260 Simmons, Harold, 181 Singer, Paul, 58, 275, 293; activism of, 59, 61–62, 71–73; as attorney, 63–64; background of, 63; on character traits, 65–66; education of, 63; Elliott Management Corporation, 58–63, 67, 68, 70, 71–73; family of, 63; father of, 63; investing principles of, 62–63; on mind set, 58; personal stuff of, 65–66; reputation of, 58–59; risk management of, 66; Samsung and, 60–62; on vulnerability of banks, 60; work ethic of, 66; Zweig and, 64–65 situational investing, 71 sixth sense, 99 skepticism, 164, 176, 193 S&L See savings and loan Slifka, Alan B., 153 small business, 150 smart investors, 79–82 Smith, Bonnie L., 129, 132, 136 Smith Barney, 41 Smith & Nephew, 97–98 Smurfit-Stone, 94, 95 Solomon, Steven Davidoff, 284, 285 Sortino ratio, 132 sourcing of ideas, 175 South Korea, 60–61 S&P 500 index, 50, 148, 175, 273 special charges, 279 special situations, 93–94 spinoffs, 14, 15, 76, 115, 213, 240, 260 spinouts, 238, 239, 257 spreads, 162, 173; box, 43; Carlson on, 165; Dinan on safe, 186–87; Figdor on, 192–93, 201; Finerman on, 148; merger arbitrage and, 192; safe, 186–87; unattractive, 174 Sprint, 144 stability, 125 standard deviation, 135 Staples, 82, 103–4, 183, 212, 222, 223–25 Starboard Value, 223 Steinberg, Bob, 54 Steinberg, Saul, 13 Steinhardt, Fine, Berkowitz & Company, 12 Steinhardt, Michael, 12 Stephenson, Randall, 11, 15 Stewart, James B., 24 Stiritz, William, 231; background of, 232, 234–35; on CEOs, 242; chess playing of, 236; on deals, 244, 247–48, 249; education of, 235; on evolution, 244–45; family of, 234–35; on ignoring immediate dollar, 250–52; on immigrant’s advantage, 237; on instant gratification, 243–44; larger game of, 241–43; on lawyers, 242–43, 248; lessons of, 237; on long game, 246–49; on management, 237, 242, 251; Naval career of, 235; on opportunities, 236–38; profit and loss statements, 239; on pruning companies, 238–40; Ralston Purina and, 233–34; as revival artist, 233–34; on self-reliance, 249; on shareholders, 248; on shareholder value, 232, 252; on spinoffs, 240; strategy, 236; on tax, 242 stock-for-stock deals, 132–33 stock market: crashes, 85; emotional excesses in, 3; landslides, 85; over next decade, 9; sensitivity, 81; severe decline, 53– 54; violent mood swings in, strategic rationale, 134–35, 149 style drift, 152 subprime market, 185 Sullivan, Diane, 224 surprises, avoiding, 133–35 systems operations, 267 Tantalum Corp., 80 Tarnopol, Michael, 54 Tarr, Jeffrey, 37; achievements of, 38; analytical edge of, 42–43; background of, 39, 41; box spreads of, 43; computers and, 42–43, 47–48; on crash, 48; discovering risk arbitrage, 41–42; education of, 38, 39; on insider trading, 47, 48; mathematics and, 46–48; as MIT professor, 48; patience and humor, 47–48; scholarship of, 39; skill and aptitude of, 39; tax and, 43, 44–45 tax, 1; arbitrage, 87; arbitrage opportunities, 43; of Bader, 157; changes in U.S., 9; code, 38, 44, 200; deals and, 87; inversion, 15, 148–49; jurisdiction, 105; laws, 92; loopholes, 44–46; Pfizer and, 105; Reagan and, 43, 44; regulations, 200; rules, 44, 120–21; Stiritz on, 242; structure, 14–15; Tarr and, 43, 44–45; Trump administration legislation, 94 Tax Reform Act (1986), 38 Taylor, Tommy, 169 teamwork, 200 technology, 166 telecom assets, 95 telecommunications, 138 television, mobile devices and, 11 Tellabs Inc., 137 temptation, 172 Tepper, David, 69 Teva Pharmaceuticals, 212 Texaco, 158, 205 Texas Commerce Bank, 168 Textron, 12 theory, 12, 199–200 Thermo Electron, 254, 269–71 Thermo Fisher Scientific Inc., 254 Thomas, Lee, 287 3M, 45 Tiedemann, Carl, 119, 191 Tiedemann Investment Group, 191, 193 “Times They Are a-Changin’, The,” 16 Time Warner, 10, 86, 136, 137 T-Mobile USA, 96, 97 Tonight Show, 40 Toronto Dominion Bank, 207 To Tell the Truth, 40 Tracy, Eleanor Johnson, 26 trading, women in, 150 Transco Corp, 31 Treasury Department, U S., 60, 104, 124, 148, 161 Treasury Wine Estates, 211 TreeHouse Foods, 233 Trian, 98 Truman, Harry, 24 Trumbauer, Horace, 279–80 Trump administration, 94 Tyco, 15, 139 UAL Corp., 13, 85, 145–46, 158, 206, 221 uncertainty, 184 uncorrelated returns, 172–74 underwriting, 173 unexpected, in deals, 137–38 United Airlines, 52, 85, 149, 157, 158, 181, 182 United States, 9, 92 United Technologies, 26, 52 University of Oklahoma, 76–77 U.S Airways, 98 Valeant, 87, 105, 295 Valentine, Dick, 44 Valle’s Steak House, 46, 47 valuation: of cash, 159–60; of corporations, 29, 81–82; edge, 81; Montrone and, 269–70; Price on, 74 value creation, 76, 171 value gaps, 29, 34, 92 value investing, event overlay and, 210–11 value proposition, for risk arbitrage, 172 variety, 127 Vicinelli, Paolo, 5–6, 11, 15 Vietnam War, 40 Virgin America, 194, 195 Virgin Atlantic, 195 Vitale, Rob, 240, 251 Vivendi, 95–96 vulture assets, 74 Wachtell, Lipton, 106, 275, 291, 292 Walking Dead, 11 Wall Street, 2, 75, 76, 84, 102, 103, 265 Wall Street Journal, 154, 265 Walmart, 103, 224 Wasserstein, Bruce, 257 Waste Management, 261 wealth creation, 152–53 Weeden & Co., Weil, Gotshal & Manges, 224 Weinstein, Willy, 42 Welling, Kate, 7, 8, 16 Welling on Wall St (Welling), 7, Wellington (Duke), 57 Welling@Weeden, Westchester Capital, 128–36 Western, 12 Western Union, 67 Westgate Group LLC, 234 Westin, 157 Westinghouse, 12 Westin Hotels, 181 Westlake Chemical, 193 Wheelabrator-Frye, 255, 259, 260, 269, 270 Whee-labrator machines, 259 Wheelabrator Technologies Group, 260–61 Whitman, Marty, 67 Widener, George, 279–80 Williams, 176–77 Witter, William D., 12 women, 150 Worldcom, 139 World War I, World War II, 20 Worley, Jay, 290 Wyatt, Oscar, 30, 33–34 Wyser-Pratte, Guy, 6, 12, 19, 27, 77, 119, 147; activism of, 29–30, 33–35; Boesky and, 27–28; Clifford and, 24–25; dealspread analysis of, 36; education of, 21–22; emigration of, 20–21; family of, 20–21, 22, 23, 36; Finerman and, 147; KUKA and, 35–36; lawsuits of, 29–30; lifting veil, 23–24; in Marine Corps, 21–22, 23; Marine Corps training, 20; Pru-Bache and, 30–33; risk arbitrage and, 28; salary of, 25; scrapbooks of, 20; shareholder rights and, 29–30 Wyser-Pratte & Co., 20, 22 York Capital Management, 179, 183, 184, 185 Zimmer Biomet, 98 Zimmerman, Jamie, 202; activism of, 213–14; Amherst classmates of, 203–4; athletic career of, 215; background of, 204–6; Boesky and, 204–5; as conservative, 209; Curtis and, 205–6; death of husband, 207; distressed debt cycle, 209–10; on doing own work, 206–7; downside and, 209; education of, 203, 215; family of, 207, 216; intensity and passion of, 204; portfolio of, 212–13; on positions, 213; on research, 202; on risk arbitrage, 208; risk/reward and, 209; on value investing with event overlay, 210–11 Zuckerman, Greg, 100 Zuckerman, Paul, 214 Zweig, Marty, 64–65, 66 Zweig Forecast, 64 ... different classes of owners in various tranches A form of arbitrage Buying one asset forward, for future delivery, and selling a similar asset forward for a higher price, in expectation of profiting from... aftermath of the First World War, the term has often been compounded as “risk arbitrage or merger arbitrage. ” The terms are most often used by Street denizens to describe seeking profits by... Roger Murray Professor Murray was the successor at Columbia to value investing gurus Benjamin Graham and David Dodd It is Ben Graham, of course, whom Warren Buffett credits with most of his success