Business, 23.09.2021 17:20 hebiancao

On 13 June 2016, Microsoft Corp. (Nasdaq: MSFT) announced that it will acquire LinkedIn Corporation (NYSE: LNKD) for $196 per share in an all-cash transaction valued at $26.2 billion. Microsoft offered four of its shares for every share of LinkedIn. On the announcement date, the shares of Microsoft are trading at $49, and the shares of LinkedIn are trading at $131. Before the merger announcement (e. g., in April 2016), the shares of LinkedIn have been trading around $120, and those of Microsoft around $55. The board of both firms approved the merger, and shareholders’ approval is expected soon. A hedge fund manager wants to profit from this potential merger deal. Assume that the hedge fund’s position will involve 420 000 shares of LinkedIn. Ignore the cost of securities lending and margin deposit.

i) Explain why Microsoft offered $196 for every share of LinkedIn which is currently trading at $131.

ii) Outline the strategy that the hedge fund manager can implement. Explain your answer.

iii) On 7 December 2016, the regulatory body approved the merger, and Microsoft announced that the acquisition of LinkedIn has officially closed. On 7 December 2016, the shares of Microsoft are trading at $60, and the shares of LinkedIn are trading at $196. What will be the consequences for the hedge fund? Explain your answer.

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On 13 June 2016, Microsoft Corp. (Nasdaq: MSFT) announced that it will acquire LinkedIn Corporation...

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