Merger arbs: Spread thin

Merger arbs are running out of places to play. The unexpected collapse of BHP’s $66bn bid for Rio Tinto was the latest hammer blow to hedge funds which try to exploit price differences in merger deals. Reassurance from BHP management as recently as a week ago kept many arbitrageurs in the game. Instead, BHP got cold feet, erasing $20bn of Rio Tinto’s market value – as long-Rio-short-BHP positions were expediently unwound. That particular bet can be second-guessed, but event-driven hedge funds –...