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Special Situation Investing

Special Situation Investing

Brian J. Stark
1983
T4 243 pages · about 4h 3m to read Open Librarygoodreads

Hedging, arbitrage and liquidations as a combined discipline.

Summary

The reference has not verified this book in detail; the summary states only what the title, author and subject establish.

Brian Stark wrote this practitioner treatment of special situation investing, meaning positions whose outcome depends on a specific corporate event rather than on general market movement or on business performance.

The situations covered include risk arbitrage in announced mergers, where the position is the spread between the market price and the deal terms; tender offers and the mechanics of proration when an offer is oversubscribed; corporate liquidations, where the analysis is of asset realisation and timing; recapitalisations and exchange offers; rights offerings; spin-offs; and securities of companies in bankruptcy. For each, Stark sets out the mechanics, the sources of return, and the specific risks, principally that the event does not occur or occurs on different terms.

The reference has not verified this book in detail beyond its subject matter, and this entry describes the field rather than the author's particular arguments. Readers should note that it dates from 1983 and that merger arbitrage spreads, deal protection mechanisms, bankruptcy practice and the regulatory framework for tender offers have all changed substantially since. Later treatments including Joel Greenblatt's work cover overlapping ground.

Key takeaways 6

  1. Special situation returns depend on a specific corporate event occurring rather than on market direction or business performance.
  2. Merger arbitrage returns are the spread between market price and deal terms, which compensates for the probability the deal fails.
  3. Deal failure risk is not diversifiable in the usual way, because deals fail in clusters when financing markets close.
  4. Proration in oversubscribed tender offers determines the actual return, so the analysis must estimate participation rates.
  5. Liquidation analysis depends on the timing of asset realisation as much as on the estimated proceeds.
  6. Securities of companies in bankruptcy are priced by process expectations rather than by asset values alone.

Who should read it

Event-driven investors wanting a survey of special situation types and their mechanics, with the caveat that this entry is not verified in detail and the book is dated.

Similar books 6

Chosen by shared topics, the entries that hold them, and the people who recommended both.

Merger ArbitrageMerger Arbitrage
T3 Merger Arbitrage
Thomas Kirchner · 2009
Open LibraryGoodreads

Modern manual covering deal types, financing risk and hedging.

Merger Masters
T3 Merger Masters
Kate Welling, Mario Gabelli · 2018
Open LibraryGoodreads

Interviews with the leading arbitrageurs on process and risk.

Risk ArbitrageRisk Arbitrage
T2 Risk Arbitrage
Guy P. Wyser-Pratte · 1971
Open LibraryGoodreads

The mechanics of merger arbitrage as practised by a family arbitrage firm.

You Can Be a Stock Market GeniusYou Can Be a Stock Market Genius
T1 You Can Be a Stock Market Genius
Joel Greenblatt · 1997
Open LibraryGoodreads

Where to find mispriced stocks: spinoffs, mergers, bankruptcies and restructurings.

“Joel Greenblatt wrote probably the best book ever 'You can be a Stock Market Genius'.” — Dan Loeb

Source: Loeb calling it probably the best book ever written on investing

Recommended by: Dan Loeb, Guy Spier, Mohnish Pabrai and 6 others

Dear Chairman: Boardroom Battles and the RisDear Chairman: Boardroom Battles and the Rise of Shareholder Activism
T2 Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism
Jeff Gramm · 2016
Open LibraryGoodreads

Eight activist letters over a century, from Graham in 1927, and what lay behind them.

Recommended by: Mohnish Pabrai

Merger Arbitrage
T4 Merger Arbitrage
Lionel Melka, Amit Shabi · 2012
Open LibraryGoodreads

European-focused fundamental approach to deal spreads.

Where it sits in the reference 2

Merger arbitrage
Business models
Spinoffs and Special Situations
Investment styles

Topics

Investing