Vodafone's Bid for Mannesmann

Probabilities of Outcomes

Basis: Payoff $($in $)$

# of Vodafone shares per Mannesman share $53\mathrm{.}71.$ Receive $53\mathrm{.}7$ Vodafone shares

Success $2.$ Proceeds from short$-$sell:

On Dec. $17$th $-$ risk free rate: $5\mathrm{.}5\%$ over, say, $3$ mos.

$1.$ Buy $1$ Mannesman share $(146\mathrm{.}8/234)$

$2.$ Short$-$sell Basis Vodafone shares $(3\mathrm{.}11$@$,167$ total$)$

Failure $1.$ Hold $1$ Mannesman share @Oct$\mathrm{.}21$st price $146\mathrm{.}8$

$2.$ Pay back Basis Vodafone shares @Oct. $21$st price

$3.$ Proceeds from short$-$sell $($same as above$)167\mathrm{.}0$

Risk spread $($in $)$:

Basis Vodafone shares Prob. Success $*169\mathrm{.}3+$ Prob. Failure $*118$

Mannesman share $=(1+5\mathrm{.}5\%)^\mathrm{.}25$

Prob. Success $*169\mathrm{.}3+(1-$ Prob. Success$)*118$

$(1+5\mathrm{.}5\%)^\mathrm{.}25$