About five months ago I had bought Linkedin shares . This was right after Microsoft announced they would be buying Linkedin shares at $196 per share. One of my main drivers for buying these shares were because they were trading at below the price Microsoft had agreed to buy them at. They were trading between $191 and $192 at that time.
I believed this to be an arbitrage opportunity. You can read about my thought process here .
The definition of arbitrage is.
“The simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.”
I did sell my shares for over $195. However, I had held the shares for over 5 months. My return was under 2%. Even though I made a gain, taking the time factor of money this return isn’t something to brag about!
I expected the stock price to be closer to $196 in a shorter time period than 5 months. The market was discounting the price for regulatory approvals.
Lesson learned – If an acquired company is trading below acquired price – identify the root cause and work out approximate timelines for when the target company may reach the acquired price. If the return is low and the time period to hit target is more than a month – it is not an arbitrage opportunity!