On Thursday, February 7, 2019, SunTrust Bank and BBT Bank agreed to merge. If the merger is approved by regulators and shareholders, the combination would create the sixth largest U.S. bank. Under the terms of the transaction 1.295 shares of BB&T stock will be exchanged for 1 share of SunTrust stock. SunTrust will merge into BB&T. The merged company will assume a new name and be headquartered in Charlotte, North Carolina. BB&T shareholders will control 57% of the new company and SunTrust shareholders will control 43%. The 14 board members will be evenly split between the two banks. The breakup fee is $1.1 billion payable by either party that terminates the merger. The deal is expected to close in the fourth quarter of 2019. The banks expect to realize $1.6 billion of synergies annually by 2022.

BB&Ts stock closed at $48.53 on February 6, 2019 and at $50.46 on February 7, 2019. The market capitalization was $38.52 billion on February 7^th. SunTrusts stock closed at $58.74 on February 6, 2019 and $64.72 on February 7, 2019. SunTrusts market capitalization was $28.92 billion. BB&T has a beta of 1.12 while SunTrust has a beta of 1.65. There are 766.33 million shares of BB&T outstanding and 446.89 million shares of SunTrust outstanding. The S&P 500 a measure of overall market activityclosed at 2731.61 on Wednesday, February 6, 2019 and at 2706.05 on Thursday, February 7, 2019.

A. What, if anything, does the excerpt suggest is the present value of the synergies of the combined firm expected by the market? Explain your answer and show your calculations.

B. Suppose it is February 7, 2019 and you buy 1,000 shares of SunTrust Bank at the closing price $64.72 per share. You believe that the merger deal will go through and immediately decide to convert your trade into a risk arbitrage trade instead. You are able to buy or sell shares in either bank at the February 7^th closing price without impacting the market price but want to be either long or short 1,000 shares of SunTrust. What position(s) would you take and what would be your maximum profit if the deal closes as you expect? Show your calculations.