Pfizer (NYSE: PFE) agreed to buy Wyeth (NYSE: WYE) on Jan 26 2009 (forbes). Quote Forbes:
According to the terms of the deal, each outstanding share of Wyeth will be converted into $33.00 in cash and 0.985 of a share of Pfizer stock, valued at$15.57 per share, based on Pfizer’s current price.
Last I checked: $33.00 + $13.60 * 0.985 = $ 46.40 vs. Wyeth current price $42.53.
Hmm, 9% return in how long (one source says the deal could close in Q4 2009).
0) Pfizer stock drops, because WYE stock is now tied to PFE stock (0.985 correlation);
1) The close could not close by Q4 due to financing or anti-trust issue;
2) Another bidder emerges (whch is a good thing);
Reference: arbitrage explained in Wiki.