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by ckelly 1519 days ago
> I wouldn't put too much weight into any sort of imputed probability from the price.

It's absolutely fair to impute a rough probability of deal closure from the stock price. The whole "merger arbitrage" industry works around that premise.

Sometimes the market doesn't think a deal has a 100% chance of closing (like MSFT and LinkedIn) and it still closes. There were valid antitrust concerns circling that deal, e.g. https://thehill.com/policy/technology/298573-salesforce-rais...
1 comments
diebeforei485 1519 days ago
That's not the same as saying the market wasn't taking the offer seriously.

> The whole "merger arbitrage" industry works around that premise.

If the market price reflected the probability, then an arbitrage strategy should not be profitable.

Usually, these folks have better experience/skills/knowledge about M&A, antitrust, etc than the market average. In other words, the market doesn't reflect the probability of an event happening.

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ckelly 1519 days ago
Yes, I wasn't commenting on the original "taking it seriously" language.

> If the market price reflected the probability, then an arbitrage strategy should not be profitable > The market doesn't reflect the probability of an event happening.

No, the market's implied probability could be right, on average, across all deals...and the top merger arb funds could absolutely still be profitable by selecting deals when they think the market is mispricing the probability (for the reasons you mention: better experience, knowledge, etc.)

It's like the sports betting market: you can roughly impute a team's win probability from the (opening) betting line...and even if that's right on average, the top gamblers are still profitable.

And, of course, sometimes things with a say, 40% chance of happening do happen...so that doesn't mean the market was "wrong" about the chance (i.e. your LinkedIn mispricing exmaple).

But sounds like we're in full agreement you can't look at the implied probability from the market price and draw some conclusion about it definitely happening, or definitely not happening (e.g. the market not taking it seriously).

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diebeforei485 1519 days ago
Yeah, I think we're in agreement.

Another point however, about the market voting that the Musk takeover won't happen - we can only speculate as to why they predict it won't happen.

It doesn't necessarily mean they think he can't line up the financing. It could just mean they don't think the board will accept his offer.

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