Speculate - Mergers & Acquisitions SCENARIO MICROSOFT BIDS $44.6Bn ($31per share) FOR YAHOO. On February 1, Microsoft proposed a takeover of Yahoo for $44.6bn. This equates to $31 per share. Often with such large takeovers there can be rival bids. The press is talking of potential rival bids from News Corp, Time Warner or even AT&T. STRATEGY Whilst Yahoo CFDs trade at a reasonable discount to the proposed $31 per share bid then we buy. If there are no rival bids then we get the difference between where we buy the CFD and $31. If a rival bid is placed on the table then who knows what the upside will be. However, like all M&A activity the regulator may not approve the takeover. Therefore any position is still a risk and should be covered appropriately.
RISK/REWARD If there are no further bids and the Microsoft takeover is approved then we will close our position at $31 realising a profit of $25,000 or $2.50 per share. Should the bid not be approved or Microsoft withdraw their offer then our trailing stop would sell the CFDs @ $28.20 realising a loss of $3000 or $0.30 per CFD. Finally, if there are any further bids then they will need to be in excess of $31, therefore further increasing your profit. HOW TO EXECUTE THIS STRATEGY Opening trade: Buy 10,000 YHOO:xnas @ $28.50. Stop Loss: Place trailing stop to Sell 10,000 YHOO:xnas distance to market $0.30, trailing step $0.05.
Our strategy is to buy on the date of announcement and hold until further information is released. COSTS We buy 10,000 YHOO:xnas CFDâ€™s @ $28.50 upon the release of the news. YHOO is margined at 10%. We contribute $28,529 as margin requirement and pay interest of $43.59 per day as we are long. Nominal value of the trade is $285,290. We do not set a profit target at this stage. A trailing stop is placed to protect our position set at distance to market of $0.30, trailing step $0.05.
How to take maximum advantadge of CFDs.