Last week I was able to purchase Petrohawk at a 2.5% gross spread on a deal that was as close to a sure thing as one could get (I bought at $37.85 and the deal is closing tomorrow at $38.75). I never wrote about it because I was only filled on about 15% of my desired position. Quibbling about a few pennies sure seems silly now but when the deal was available a week ago when the market was tanking it felt scarier.
The point of this anecdote is to point out that there are some good deals available in the merger arb world. Wall Street prop desks and European banks are the major players in merger arbitrage. Wall Street has scaled back proprietary trading and European banks are in risk off mode. There is simply not enough capital to close these spreads as many hedge funds do not have this expertise.
Today, I entered the Medco/ Express Scripts merger arbitrage play. This is not nearly as low risk as the Petrohawk deal but there is a 27% gross spread available. The downside seems protected as Medco is trading lower today than where it was before the deal was announced. I believe the risk/reward is very favorable in this spread and have taken a position. However, because there is some risk in this trade it is smaller than the position I wanted to take in Petrohawk.