Tower Group (NASDAQ:TWGP) represents an interesting arbitrage opportunity for brave investors. The company is set to be taken over by ACP Re, an affiliate of AmTrust Financial (NASDAQ:AFSI), at $3 per share in cash. However, TWGP trades at only $2.23 per share as of the close of business on May 6, 2014. The spread is thus a whopping $0.77, or nearly 35% of the current market price. Assuming that TWGP would be worthless if the merger fails, the market is assuming only a 74% chance that the merger will be completed at $3. This appears to be too low, as further discussed below.
The amended preliminary proxy statement for the merger was filed a month ago...
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