Scott Siegel, manager of an M&A hedge fund, watched a news flashes on his Bloomberg screen at 4:00 p.m. on June 13, 2017. Celera Genomics, a Rockville company known for mapping the human genome, announced it would acquire AXYS Pharmaceuticals Inc., an integrated small molecule drug discovery and development company. The deal was structured as a stock swap in which AXYS shareholders would receive 0.1016 Celera share for each AXYS share. Celera had closed the previous day at $41.75, and AXYS at $3.45.Scott immediately put his well practised M&A arbitrage strategy into actions.

-What's M&A arbitrage? Explain the drivers for capturing returns in an M&A arbitrage transaction.

-Assume that the acquisition was completed in 5 months (150 days). Assume further that Siegel purchased 300,000 shares of AXYS at an average cost of $4.15, and shorted 29,800 shares of Celera. Siegel funded 70% of his purchase with debt. Celera's share price on the closing date was $27.43. Assuming a borrowing cost of 8%, calculate the return on Siegel's investment for the holding period and on an annualized basis. Make any other assumptions that you believe are necessary