City: Arb rage

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Only two books have been published on risk arbitrage, as far as I'm aware. One was by Ivan Boesky and we all know what happened to him. The other is by Guy (pronounced the French way) Wyser-Pratte. His is by far the better of the two - in truth Boesky's was pure plagiarism - and in many ways he is now the grandaddy of the business. Certainly he survived, unlike many of the others.

I caught up with him on the 24th floor of a downtown Wall Street office block where he now runs his own show, two relatively small risk arbitrage limited partnership funds. Most of his investors are European. Life's not as easy as it was when he headed Pru Bache's arbitrage department in the boom conditions of the 1980s, but it's a good sight more fun, he says. And the returns, if you get it right, are still spectacular - 30 per cent plus, year- in, year-out.

But how do you manage that when the traditional food of risk arbitrage, takeovers, has all but vanished? I asked. The new game, he explained, is corporate restructuring. There are literally dozens of demergers going on all over the US. Even Britain's ICI has caught the fad, and the arbs are making a killing out of it. Indeed often they are instrumental in bringing these corporate carve-ups about.

The latest example is Sears Roebuck, a sprawling conglomerate of retailing and financial services interests. Pushed hard by the likes of Mr Wyser- Pratte, Sears' embattled chairman, Edward Brennan, has finally agreed to a partial break-up. The arbs believe the proposals don't go nearly far enough, but inevitably they'll get there in the end, Mr Wyser-Pratt says. There's just too much value there for them to fail.

Unsurprisingly, many managements regard the arbs as the lowest of the low - corporate vultures and not real shareholders at all. The Washington Post goes further, describing them as 'ravenous two-legged stock market creatures who make hungry wolves look harmless by comparison'.

Whatever you think of them - wolves or champions of shareholder value - I suspect we are going to see a lot more of them over the next few years. Mr Wyser-Pratte believes the 1990s will be marked by a demerger boom - a kind of disgorging of the excesses of the 1980s. Both in London, where Goldman Sachs, Salomons and Swiss Bank Corporation are establishing a strong presence in risk arbitrage, and in New York, the arbs are set to make a comeback.