What is the spread?
A plain guide to the number on every deal: what it is, how to read it, and the maths.
Tracking Alpha
What it is
The gap between the offer and the share price, as a share of the price: how much the price would rise if the deal closed at the offer.
How to read it
Why there is one: someone who buys now waits months for the cash and carries the chance that the deal fails. The spread is what the market pays for both, the wait and the chance of a break. It usually narrows as the close nears.
The Gross spread column, the deal sheet and the deal page show it. It counts the cash offer only: a CVR and dividends are left out. Dividends count in the annualized spread.
A negative spread means the shares closed above the offer, which can happen when the market expects a higher bid.
How it is worked out
(offer − delayed close) ÷ delayed close
A worked example
Example, with made-up numbers
Offer $50.00, delayed close $48.00.
- (50.00 − 48.00) ÷ 48.00 = 4.2%
Questions
Why is there a spread at all?
Why there is one: someone who buys now waits months for the cash and carries the chance that the deal fails. The spread is what the market pays for both, the wait and the chance of a break. It usually narrows as the close nears.
Can a spread be negative?
A negative spread means the shares closed above the offer, which can happen when the market expects a higher bid.
What does the spread include?
The Gross spread column, the deal sheet and the deal page show it. It counts the cash offer only: a CVR and dividends are left out. Dividends count in the annualized spread.
Related terms
- Annualized spreadThe spread turned into a yearly rate, so deals that close at different times can be set side by side.
- Spread trailA small line of the spread over the last ten delayed closes.
- Market-implied chance of closingA calculation from market prices: the chance of closing at which holding to the expected close would earn what Treasury bills pay over the same time.
