Event Driven Strategies - Purchase target or acquirer

CFA Level III Equities
#1

Hi,

saw a question in the CFA practice qs, Grasmere case study

it states “seeks to profit from the market inefficiencies that may arise as a result of corporate events. It can hold either long or short positions in the acquiring and target companies as appropriate to produce a profitable position.”

whilst this makes sense, the theory in the CFAI books state to purchase the target company and short the purchasing company.

can someone help clarify the answer please, i’m not getting why one would purchase the acquirer? of course if there’s a profitable position you would, but the theory states that the acquirer’s value should drop and the target should increase.

#2

It can hold either long or short positions in the acquiring and target companies as appropriate to produce a profitable position

They’ve not used the word “respectively”

#3

What about investors believe acquisition will fail? Then they will long purchaser and short target. For example, some large holders object merge or merger is rejected by regulators.

#4

I interpreted this as taking long and short positions in either the acquirer or target, depending on what’s profitable.

With one position being taken per firm.

In don’t want to read too much into this, just want to make sure my understanding is correct for the exam.

#5

I think there is data to suggest that shorting/underweighting the aquirer tends to be a profitable strategy as implementation of the acquisition can be tricky and not come through with the synergies that management expects initially. Clearly exceptions as mentioned above but this may be what is being referred to