What Merger Arbitrage Taught Mike Winston About Corporate Dealmaking

Over five years at Millennium Partners, Mike Winston co-managed a $1 billion merger arbitrage and event-driven book. Every morning, the core question was the same: if this deal breaks, what is this company actually worth?

That question sounds simple. It isn't. Winston came to Millennium with years of equity research behind him — his team at Credit Suisse First Boston covering the telecom sector was ranked No. 1 by Institutional Investor Magazine — but merger arbitrage demanded a different discipline. Where equity research asks what a company is worth, the arb desk asks whether the people running it can execute on what they've announced. Those are related questions, but not the same one.

Answering it across hundreds of transactions, in industries ranging from consumer staples to semiconductors to healthcare, builds a specific analytical muscle that standard long-only investing rarely develops. The merger arb practitioner is not a passive observer of corporate strategy. In Mike Winston's framing, they function as a continuous auditor of corporate decision-making quality.

His conclusion, drawn from that experience: truly skilled acquirers are rare.

The View From the Spread

Merger arbitrage is built on a structural inefficiency. When a company agrees to acquire another at a specified price, the target's stock typically trades below that offer. The difference, called the spread, reflects the market's collective uncertainty about whether the deal will actually close. Regulatory risk, financing risk, shareholder opposition, macroeconomic shifts: all of it gets priced in.

The practitioner's job is to assess the probability of deal completion, the expected timeline, and, most importantly, what happens to the target's stock if the transaction falls apart. Verdad Capital's analysis of 835 deals between 2000 and 2020 found that approximately 89% of announced transactions close successfully. Arbitrageurs earn roughly 2.0% on those deals and lose about 2.8% on cancelled ones. The blended return on long exposure is approximately 1.5%. However, the annualized return is generally much higher given that most deals close inside a year.

The asymmetry is the discipline. The gains on any individual deal are capped at the spread; the losses on a broken deal can be severe. As Winston notes, that imbalance forces a rigor that most equity investors never develop: the arb practitioner cannot afford to be wrong about deal quality.

What Corporate Boards Don't Ask

The discipline of merger arbitrage produces a specific skepticism about the M&A process itself. After years on the receiving end of hundreds of acquisition announcements, certain patterns become unmistakable.

Boards announce deals with stated rationales: synergies, market expansion, technological capability. Targets trade to within a few percentage points of the offer price. The arb practitioner bypasses the strategic narrative. The operative question, in Winston's view, is whether the acquiring team is actually equipped to deliver on what they've announced.

The evidence suggests most are not. NYU's Aswath Damodaran has described corporate acquisitions as "the most value-destructive action a company can take." A rigorous statistical analysis of 40,000 acquisitions worldwide over four decades, conducted by Baruch Lev of NYU Stern and Feng Gu of the University at Buffalo, found that 70–75% of acquisitions fail to achieve their stated objectives. A separate study of contested multi-bidder acquisitions found that the stocks of companies that lost the bidding competition outperformed the winners by 20–25% in the three years post-acquisition.

Losing a bidding war is, on average, better for shareholders than winning one.

Wharton management professor Emilie Feldman and IBM's Sriram Praveen Chunduru, writing in December 2025, documented the same dynamic across a sequence of high-profile failures: Bayer's $63 billion acquisition of Monsanto erased over $50 billion in shareholder value, attributable in large part to inadequate due diligence. GE's $10 billion purchase of Alstom's power division contributed to a $22 billion impairment. Warren Buffett acknowledged that the Kraft Heinz merger resulted in overpayment, with write-downs exceeding $28 billion. The pattern holds across industries and decades.

Winston has been on both sides of these dynamics. As an event-driven investor, he co-led activist litigation against the board of Dole Foods — a case in which shareholders challenged the terms of a going-private transaction they believed undervalued the company. The outcome was a 35% increase in total consideration for shareholders. The Dole case illustrated what Winston had observed from the arb desk for years: that boards frequently accept terms favorable to management and advisors, and that the pressure required to change that outcome rarely originates from inside the boardroom.

Reading the Spread as Market Psychology

One of the less-discussed lessons of event-driven investing is what it reveals about markets more broadly. Most of a stock's movement happens in a handful of days each year, concentrated around corporate events: earnings announcements, merger disclosures, regulatory decisions. The rest is noise.

This compression of value realization into discrete events reveals that markets are driven in the short term by greed and fear, and in the long term by fundamentals. Winston observed this dynamic directly across hundreds of transactions at Millennium — the merger arb practitioner has to hold both simultaneously. Accurate intrinsic value analysis is required. So is a clear-eyed read of market conditions, including the high-yield spread, which Verdad's research found predicts deal cancellation with statistical reliability: a 100 basis point increase in the high-yield spread is associated with an 80 basis point increase in the probability of deal cancellation.

That connection between credit conditions and deal outcomes takes time to internalize. For practitioners who track it across multiple cycles, the pattern becomes second nature. The 2022 wave of LBO collapses, as the Federal Reserve raised rates aggressively, confirmed what the high-yield spread data had been indicating throughout the tightening cycle.

The Current Moment

The regulatory backdrop of 2025 produced the strongest performance for merger arbitrage since the post-pandemic dealmaking surge. AllianceBernstein reported in December 2025 that the HFRI Event Driven Merger Arbitrage Index was up 8.2% through the third quarter of the year, the best start since 2021, and second-best since 2009. U.S. deals exceeding $5 billion rose 166% in the third quarter year over year. A lighter regulatory touch under the current administration accelerated deal approvals, reduced binary regulatory risk, and shortened timelines. Fewer deal breaks drove performance accordingly.

The conditions illustrate something Winston has long argued about the strategy: merger arbitrage performs best not simply when markets are strong, but when deal certainty is high. The spread-tightening that drove 2025 returns was a function of regulatory predictability as much as economic growth. Arbitrageurs price risk. Remove a major source of uncertainty, and spreads compress. Restore it, and they widen. That mechanical relationship is the core of the strategy.

The outlook heading into 2026 remains constructive, with AllianceBernstein citing strong deal pipelines, private equity capital waiting to deploy, and a monetary policy environment that may modestly loosen. Spread compression as more arbitrage capital enters the space poses the primary headwind.

What the Framework Actually Demands

What merger arbitrage ultimately produces is a specific analytical posture that transfers directly to evaluating corporate strategy — and, for Mike Winston, to evaluating deals of his own.

Three questions Mike Winston returns to when assessing any significant corporate transaction are the same ones he applied running the book at Millennium Partners: What is this business worth if the deal breaks? Is management's stated rationale supported by the financial history of comparable transactions? And who bears the downside if it fails?

Those questions now operate in a different context. As Co-Sponsor and CEO of AI Infrastructure Acquisition Corp. (NYSE: AIIA), a SPAC targeting data center and AI infrastructure assets, Winston is evaluating acquisition targets against the same disciplined criteria he once used to assess whether existing deals would close. The sector has changed; the framework has not.

The frequency with which those questions go unasked, by boards, analysts, and financial press alike, is part of why the 70–75% failure rate persists. Skilled acquirers do exist. Danaher is a frequently cited example of a company that has built genuine acquisition competency across decades and hundreds of transactions, with structured decision-making and integration frameworks that resist institutional pressure to transact for its own sake. What distinguishes these firms is accountability: acquisition teams that accumulate experience across deals, and compensation structures that tie executive reward to outcomes rather than announcement.

The rest of the market tends to repeat the same patterns. Overpay. Overestimate synergies. Underestimate integration costs. Then announce the next deal before the current one has been absorbed.

That pattern was visible from the spread desk. It remains visible today.

Mike Winston, CFA, is the Founder and Executive Chairman of Jet.AI, Inc. (NASDAQ: JTAI) and Co-Sponsor and CEO of AI Infrastructure Acquisition Corp. (NYSE: AIIA).