On January 4th, 2016 LAFCO Industries (LAF) announced a proposed acquisition of Siebel Incorporated (SINC) for $15/share in cash. The deal was expected to close on 9/30/2016 (270 days after announcement). In trading on 1/4/2016, SINC shares traded for $14.05 and LAF shares traded for $12.06. Assume that interest rates are 4% p.a. (APR) compounded daily, and that present and future values are based on the assumption that a year has 360 days. Ignore any taxes and other transaction costs.
a- If you want to perform an arbitrage transaction with two million SINC shares, how much money would you borrow on 1/4/2016?
b- What would your dollar profit be on the announcement day if you executed an arbitrage transaction with two million SINC shares?
c- How much money would you lose (ignoring the announcement day profit) if the closing of the transaction were delayed until 12/30/2016 (the last trading day of the year: 361 days after announcement)?