Even Las Vegas odds makers didn't see this one coming. A
surprise $7.6 billion bid for the Mandalay Resort Group by Kirk
Kerkorian's MGM Mirage unleashed massive shockwaves in June
markets, proving a surprise win for equity holders, while
utterly hammering many funds that were caught sitting on the
target company's convertible bonds.
As word of the biggest buyout in Las Vegas history hit the
street, Mandalay's common stock surged and the convertible
dropped 20% on the day. On the convert side, some hedge funds
holding the Mandalay floating-point convertible bond were
walloped thanks to what was announced as a "cashless" buyout.
Even swappers not holding Mandalay were caught like deer in the
headlights when as many as 30 other convertible issues suffered
sizable collateral damage as the market participants learned
about a lack of cash-takeover protection the hard way.
But the great Mandalay Convertible Massacre of '04