A Hertz rent-a-car shuttle bus drives by a Dollar Thrifty rent-a-car lot near the Detroit airport in Romulus, Mich. in this file photo. Hertz Global Holdings has agreed to buy rival Dollar Thrifty Automotive Group for about $2.3-billion (U.S.).REBECCA COOK/Reuters
Nexen Inc. shares are moving higher late Wednesday, and it doesn't have much to do with the prospects for the successful takeover of the Canadian oil company by China's CNOOC Ltd.
Instead, it relates to something seemingly unconnected – the pending takeover of Dollar Thrifty Automotive Group of the U.S.
Check the charts. Dollar Thrifty shares pop in the middle of Wednesday afternoon on signals that the approval of its purchase by rival car rental company Hertz Global Holdings by regulators is imminent.
Just a few minutes later, with the rest of the market generally sinking, Nexen shares start to climb toward their highest level in weeks.
Did some news about Nexen's proposed takeover by China's CNOOC start to leak out to convince people to buy Nexen shares?
No, say some traders.
It's simply a matter of arbitrage traders who bet on deals getting done feeling more comfortable with adding more to risky deals like Nexen as risk comes out of the Dollar Thrifty transaction, said Ron Mayers, senior vice president of alternative strategies at Laurentian Bank, a role in which he works with hedge funds that focus on arbitrage.
"There is no return in resting capital," he said. With Dollar Thrifty looking more likely, "the risk management department just breathed a huge sigh of relief [and] greenlighted additional risk. That's how it works."