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How Hedge Funds Make Money From Bidding Wars

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MarketWatch has a fascinating report on how certain hedge funds, including Paulson & Co. and Sandell Asset Management, have positioned themselves to profit from the ongoing bidding war for Associated British Ports Holdings PLC.

According to regulatory disclosure, New York-based Paulson & Co. would make a paper profit of GBP14.4 million on contracts for difference it holds on 10 million shares if the Goldman bid is successful, not counting its cost of financing the position. The CFDs Paulson held as of May 26 represent 3.31% of AB Ports' share capital. It bought contracts on 7 million of the shares that week for as little as 765.2 pence.
Sandell Asset Management, also of New York, had equity swaps on 9.35 million AB Ports shares as of Wednesday, representing 3.1% of the port operators' equity. From an initial holding of 3.6 million shares a week earlier, Sandell bought swaps each day over the period for between 833 pence and 881 pence, putting its on-paper profit Friday in the case of a successful 910-pence-per-share bid at GBP5.3 million.
The equity swaps are held by Castlerigg Master Investments, a Sandell fund.

No word on which funds may have tried to play the troubled Univision auction.

Hedge funds to reap rewards of AB Ports bidding war