0

I have a general understanding of how mergers and acquisitions work for symbols being traded in long positions. However, I am confused about how these events are calculated when shorts positions are involved.

Let's say symbol ABC is merging with XYZ. Merger ratio is 1:2 (1 of ABC for 2 of XYZ)

If I am long 10 ABC and long 20 XYZ, after the merger I would be long 20 on ABC.

What happens if I am...

short on ABC and long on XYZ?

long on ABC and short on XYZ?

short on ABC and short on XYZ?

flat on ABC and short on XYZ?

1

This is a basic algebra problem. The terms of the merger are:

(1) ABC = 2 * XYZ

Your first scenario was that you are:

(2) long 10 ABC and long 20 XYZ

You did the substitution of (1) in (2) and came up with the answer of:

(3) Long 20 of ABC

So why are you asking us to do this for four more scenarios?
As they say, do the math!

  • Substitution for when both ABC and XYZ long seems correct, so I got that part of the math. However, your answer doesn't show what happens when one of the companies is a short position. Is it simple as just subtracting the new amount of shares when one of the companies is being shorted? – Ramasdf Apr 16 at 0:52
  • My answer addresses any position involving the stock to be acquired. Short is simply the opposite of long and that means a minus sign instead of a plus sign. If you're short 20 shares of XYZ (-20 XYZ) and the conversion is 1:2 then you end up short 10 shares of ABC (-10 ABC). – Bob Baerker Apr 16 at 1:26

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.