Arbitrage Assignement Essay

1546 Words Oct 27th, 2013 7 Pages
Mergers and Acquisitions
Homework Assignment 1 (revised 9/14/2013)

The attached (end of this file) press release dated 12/16/04 from Symantec (SYMC) describes conditions under which it would acquire Veritas Software (VRTS). Note that will find arbitrage examples and other useful information in the file: “Arb Handouts w-o formulas.xlx” on Blackboard.

This assignment has two parts, A and B.
A. Arbitrage Analytical Analysis (spreadsheet required)
This first part requires that you analyze this transaction from an arbitrageur's viewpoint.

Assumptions Related to Part A: make the following assumptions in your analysis:
Assume that you borrow 40% of any funds you need (i.e. you buy on 40% margin)
You pay interest on borrowed
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Under the agreement, which has been unanimously approved by both boards of directors, VERITAS stock will be converted into Symantec stock at a fixed exchange ratio of 1.1242 shares of Symantec common stock for each outstanding share of VERITAS common stock. Upon closing, Symantec shareholders will own approximately 60% and VERITAS shareholders approximately 40% of the combined company. The transaction is expected to be tax-free to shareholders for U.S. federal income tax purposes.

The combined company will operate under the Symantec name. John W. Thompson, Chairman and Chief Executive Officer of Symantec, will continue as Chairman and CEO of the combined company. Gary L. Bloom, Chairman, President and Chief Executive Officer of VERITAS, will be Vice-Chairman and President of the combined company. The board directors of the combined company will include 6 members of Symantec's current board and 4 from VERITAS' current board for a total of 10 members.

"Customers are looking to reduce the complexity and cost of managing their IT infrastructure and drive efficiency with fewer suppliers," said John W. Thompson, Chairman and CEO, Symantec. "The new Symantec will help customers balance the need to both secure their information and make it available, thus ensuring its integrity. We believe that information integrity provides the most cost-effective, responsive