in most mergers and acquisitions (m&a), the company being acquired receives a hefty premium from the buyer, resulting in overnight windfall profits for its shareholders. there are strategies that seek to profit from m&a announcements, although the potential gain in the majority of cases would be much smaller than that arising if the target stock had been purchased prior to the announcement being made. the price at which minnow would open for trading the next day depends on a number of factors: the probability assigned by investors of the deal going through, the chances of a rival bid, anti-trust concerns, whether whale has the financial capacity to buy minnow etc.let’s say whale and minnow are dominant players in fish oil, and some investors think regulators may scuttle the deal because it would create a monopolistic entity.
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ignoring trading costs and commissions, this strategy would pay the investor approximately 7.7% over a six-month period, or 15.4% annualized.using the whale-minnow example, suppose the deal does not get approved by the authorities. you might be able to wring out some profits even after an m&a deal has been announced, by using one of the strategies mentioned above.