A question about shares/mergers

[blindswelledrat]

A curiosity here.
In a sea of terrible shares and cringeworthy catastrophic choices, one of my shares Amlin PLC has shot up 32% today over an announcement that it is being sold.

The announced deal is that a Japanese company is paying £6.70 per share plus 8.4p interim dividend.
Currently the price stands at £6.52.

Now if my maths are correct, then if you bought them now you are guaranteed a 4% return in a potentially small time frame.
Whats the catch? Or have I completely misunderstood things? Or is the time frame potentially huge? Could a buyout take years?

Cheers

[fat80b]

blindswelledrat said:

A curiosity here.
In a sea of terrible shares and cringeworthy catastrophic choices, one of my shares Amlin PLC has shot up 32% today over an announcement that it is being sold.

The announced deal is that a Japanese company is paying £6.70 per share plus 8.4p interim dividend.
Currently the price stands at £6.52.

Now if my maths are correct, then if you bought them now you are guaranteed a 4% return in a potentially small time frame.
Whats the catch? Or have I completely misunderstood things? Or is the time frame potentially huge? Could a buyout take years?

Cheers

My understanding is no catch as such.

What you now have is a price that reflects 2 things: the cost of money and the risk of the transaction not completing.

Depending on how long the deal takes to close (~9 months ish perhaps), you could make an assumption for the cost of money factored in.

You can then decide if the risk element is accurately priced in or not.

If the perfect market theory is correct, then the price accurately reflects the risk.

Bob

[marky1]

Discount to reflect risk it doesn't go ahead basically.