Kate Welling, WellingonWallSt. founder, and Mario Gabelli, Gamco Investors chairman and chief executive officer, discuss their new book “Merger Masters: Tales of Arbitrage” with Bloomberg’s Tom Keene on “Bloomberg Markets: European Close.” (Source: Bloomberg)
Mario Gabelli On New Book ‘Merger Masters: Tales Of Arbitrage’
We wrote about Ben Graham's activism at northern pipe line, but there are other interesting stories involving the father of value investing Value investing and activism go hand-in-hand. Benjamin Graham, the godfather of value investing, discovered how important it is to incorporate activism into a value strategy relatively early in his career, a strategy that Read More
Congratulations on already the Book of 2019 would you explain how you tied him down for enough time to actually get Merger Masters going.
It was actually the opposite. He was very patient and persistent in trying to convince me and ultimately generous to sponsor the book.
Look at all the work I know Kate about this about with Maryon about with mergers and arbitrage and all that it's there's a seriousness to it in all the different chapters of all these people involved there's a cadence to with its global Wall Street. It just says adult. How do you approach making this such a serious book.
Well they are serious people I was talking to and they pretty much flows naturally from it. Mario is absolutely passionate and absolutely serious about. The importance of merger arb as a strategy because it's so flexible and fundamental as he sees that to success in any kind of investment especially deal invests in June 1969.
GHI Yser seminal paper risk arbitrage. In his Utomi Mario backstage it was about finally the commissions came down so he could play the game.
The guy who was at low Brose as an analyst and they had a couple of deals that they wanted me to look at and I would talk to the head of the arbitrage department but most of that period. Tom in the late 60s early 70s it was the internal Capitol desk of the brokerage firms. They had an advantage in 1975 6 7 I start my own firm. I read the DeWyze of Pratt. I jumped on the notion of arbitrage because you learn about all the techniques of financial engineering company wants to buy company B. What is Henry Kravis want to do. What is the one or the other the guys want to do what is Mike Milken doing. And is the roadmap the roadmap of success. Kate and I met late 70s when she was on Behrendt's and we got her to do this.
Let's go to a underworld world there's Crane and steel Michael Price in the book you know who is supporting the dreaded Yankees fan. Crane fans still fans still is going to be taken out by crane go short Crane long fence still right. And you hold it for what. Two cups of coffee.
Oh the ideal world is that depending on the deal if it's all cash by a corporate buyer. Right strategic. You know they're holding period is probably 90 days a tender offer. But today there were a lot of more approvals they have to get. But on balance in today's other deals could take a long time Tom like the utility industry. But if there's all cash you don't do anything like in the case of Disney buying. You know there's an opportunity ARB it by shorting the Dili and then you get a spin off and then that trades when issued. So there's a lot that goes on tribu being bought by next door as all cash.
John Paulson as well. Q Well he talks about a sixth sense. What did you learn. I mean a lot of people that aren't in the street are going to go oh this is all crystals and pyramid. What did you learn about the human behavior the sixth sense of being risk arbitrage.
It's absolutely crucial to it. These people are intense valuing analysts but they're also intense students of market psychology business psychology deal psychology by watching the progress of deal after deal deal. They hold up an incredible knowledge base that they use time and again. But it's all about being able to understand is there a strategic rationale to this deal. Is it just a finance deal.
What what this gunman wrote the book is the brute beauty the book and I mentioned this in a moment. And all the deals in the back that you want through but come on Mario it's not a free lunch. What goes wrong.
Well even today for example company walks by company B unannounced and the stock dropped. You heard your concern that when there you could not because the bank offering cash. OK. And sometimes you hedge against that by dispersing the concentration of a given sector for example to the summer of 2000 and 18. We had a little arm twisting going on between the United States and China and it retaliated by just sitting on the approval of a NXPI that was going to be taken over by Qualcomm. They walked. So they broke the deal. The stock drops from like 100. That's when you lose. Yeah there's always going to be risk if you do a thousand tractions depending where in the cycle you're going to get 10 or 15 that a case that is an improved price and you're going to get five or 10 that bro. But for reasons you don't know now the odds are a little different because you're in a cycle of a merger masters.