Implied consideration, gross and net spread, annualised close return, break return and scenario-weighted value.
A free Alpha Investors tool
Merger Arbitrage Calculator
Calculate the live deal spread, illustrative annualised return, break downside and probability-weighted return for fixed cash, stock or mixed takeover terms.
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Target price, offer terms, expected timing, costs, dividends, break assumptions and a subjective completion probability.
Whether the deal closes, the right break price or how much correlated event risk to own.
01
Per target shareDeal terms
02
Scenario outputSpread and risk
- Implied offer value
- £50.0000
- Net close value
- £49.9500
- Gross deal spread
- 4.17%
- Net deal spread, target-price basis
- 4.06%
- Annualised close return, target-price basis
- 12.88%
- Net value if deal breaks
- £35.9500
- Target-only price move if deal breaks
- -25.00%
- Full-position break return
- -25.10%
- Probability-weighted terminal value
- £47.1500
- Probability-weighted return, target-price basis
- -1.77%
- Minimum completion probability for non-negative return
- 86.07%
The annualised figure compounds the entered net close return over the assumed days to closing using ACT/365 and uses the target share price as the return denominator; it is not brokerage-account return on capital and excludes short-margin requirements. Stock and mixed modes assume a full fixed-ratio hedge: short the exchange ratio in acquirer shares per target share. The close and break cases use their own entered carry and cost assumptions, and the break case includes the hedge move from today's acquirer price to your break-scenario price. Probabilities and break prices are your assumptions, not forecasts or market-implied odds. Collars, elections, proration, FX, financing, changing terms and borrow availability are excluded.
The decision after the calculation
The spread is visible. The reason it exists is the investment problem.
The net spread is 4.06%, but your assumptions imply a -1.77% probability-weighted return. Timing can make a spread look seductive; break risk determines whether it is.
What can stop the deal closing?What is the defensible break price?How much correlated deal risk is enough?
How it works
Price the close. Then force the break case onto the same page.
- Copy the fixed consideration and permitted-dividend terms from the definitive announcement or transaction document.
- For stock or mixed deals, enter the fixed exchange ratio and current acquirer price; the model assumes a full ratio hedge.
- Use the date when consideration should be available, not merely a headline legal date.
- Enter your own defensible break prices, break-specific carry and costs, and completion probability. They are assumptions, not facts supplied by the calculator.
Takeover-spread mechanics
The quoted return is conditional on price, path and time.
A 5% spread that closes in three months is not simply a 20% guaranteed annual return. It is a conditional payoff exposed to delay, changing consideration, hedge costs and a potentially asymmetric break.
Gross deal spread
For cash, the current spread is offer value divided by target price minus one. Fixed stock and mixed consideration use the exchange ratio multiplied by the current acquirer price.
Annualised return
The calculator compounds the net close return over the entered calendar days using ACT/365. The result is an equivalent rate under that timing assumption, not a forecast.
Fixed-ratio hedge
Stock and mixed modes assume shorting the fixed exchange ratio in acquirer shares for each target share. Dividends owed and stock-loan costs reduce the return.
Break scenario
The full-position break output combines the target break price with the hedge move if the acquirer price changes. Looking only at the target's downside can materially misstate a hedged position.
Expected value
The two-outcome result weights close and break values by your subjective probability. It deliberately is not annualised because close and failure paths can resolve at different times.
Unsupported structures
Collars, floating or VWAP ratios, elections, proration, CVRs, earnouts and cross-currency consideration require deal-specific modelling rather than a deceptively precise generic answer.
Read the transaction document. The definitive terms control consideration, dividend adjustments, conditions and timing. In the UK, a firm offer announcement must include its terms and conditions under Takeover Code Rule 2.7. Short positions can create dividend obligations and stock-loan costs; see the official Investor.gov short-sale explanation.
From spread to position
A high annualised return can be a warning label.
Alpha connects deal mechanics to regulatory risk, catalysts, timing, portfolio correlation, sizing and explicit invalidation.