In my previous post on the Allied-Ares merger arbitrage opportunity, I introduced a topic which I realized I’ve never quite talked about here on The Curious Investor. As I intend this blog for both beginning investors and seasoned investors alike, here’s a run down on the concept of merger arbitrage.

What is arbitrage?
Rigorously speaking, arbitrage is the practice of taking advantage of a price differential between two markets which allows the arbitrageur, or person taking advantage of the arbitrage, to obtain a risk-less profit.

Pepsi Cola, the original drink of Pepsico Inc. (PEP) is an anagram (a word that can be made out of the letters of another word) of Episcopal. According to one name derivation theory, the name Pepsi-Cola came about because Caleb Bradham, the pharmacist who created Pepsi on August 28, 1898, had his drugstore across the street from an Episcopal Church.

Pepsi remains one of the major national sponsors for Major League Baseball's World Series. Did you know that there are three ways to invest in Pepsi? Pepsico, Inc. is considered the primary Pepsi company. In addition to manufacturing and marketing beverage concentrates and syrups, they also have the Frito-Lay division which makes and markets snacks, the Quaker Foods North America division which distributes cereals and pasta, and the PepsiCo International division, which sells snacks and beverages. The stock has a P/E of 18, and a yield of 3%.