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The ruling from Ottawa that it will allow Rogers Communications Inc. RCI-B-T to complete its $20-billion takeover of Shaw Communications Inc. SJR-B-T rewarded investors who bet on the deal’s completion – and no doubt will encourage similar bets on other takeovers.

Is that a good idea, though?

This deal worked out for investors who held on to Shaw shares through the many twists and turns since the deal was announced in early 2021. But betting on takeovers can be a wild ride, and the Rogers-Shaw deal certainly tested investors over the past two years.

Shaw’s stock leapt on Friday toward the $40.50-per-share takeover price. The shares closed at $40.44, up 3.3 per cent for the day.

Investors who held Shaw shares before the deal’s announcement did splendidly, of course. They just cemented a return of 69 per cent, not including dividends.

But even latecomers, including savvy professional arbitrageurs who bet on a narrowing spread between a stock’s takeover price and its actual price, hit pay dirt with this one.

While the takeover price didn’t change since 2021, Shaw’s share price usually traded significantly lower, at a range between $33 and $39. This discount offered a tantalizing opportunity to score a gain of as much as 23 per cent should the deal close.

“While the merger took significantly longer to close than expected, it did close and investors (arbitrageurs in particular) generated a good return given the spread stayed consistently wide,” Julian Klymochko, chief executive officer at Calgary-based Accelerate Financial Technologies, said in an e-mail.

The Accelerate Arbitrage Fund, an exchange-traded fund that invests in arbitrage opportunities, owns Shaw shares.

The way Mr. Klymochko sees it, Shaw’s share price initially reflected the market’s view that there was a 60-per-cent chance that the deal would succeed.

A sweet spot, though, arrived last summer when Rogers agreed to divest Shaw’s Freedom Mobile, Canada’s fourth-largest wireless carrier, to satisfy regulatory concerns about competition. Then, chances of success looked considerably brighter, yet Shaw shares continued to lag, trading at a 15-per-cent discount to the takeover price.

“This key turning point tilted the risk-reward highly in investors’ favour,” Mr. Klymochko said.

Maher Yaghi, an analyst at Bank of Nova Scotia, pegged the chances of success at 90 per cent in October, when the discount was about 11 per cent. He raised the chances to 100 per cent at the end of December, when Canada’s Competition Tribunal dismissed a challenge to the deal. The discount then had narrowed to nearly 4 per cent.

The take-away here is that investors made more money on Shaw when the risks to the takeover were higher and the timeline to its completion more obscure. Those who blindly pounced on Shaw after the deal was announced are now sitting on gains of about 20 per cent over two years.

By comparison, the diversified S&P/TSX Composite Index has risen less than 7 per cent over this two-year period.

A bet on Shaw over this period trumped Canada’s Big Six banks, which are currently trading at two-year lows following concerns about the economy. And Shaw beat Canada’s technology sector, which is down about 8 per cent over the past two years as rising interest rates weigh on stock valuations.

One of the pleasant aspects to a bet on a successful takeover is that it might not require the economy – or interest rates – to play along. The problem, though, is that deal-making comes with other risks.

For starters, delays can be costly. A near-cash investment, such as a money-market fund, can generate a yield of about 4.5 per cent right now. Making 20 per cent over two years on a risky deal looks less appealing when you can make 9 per cent with no risk.

Also, the Shaw deal just happened to coincide with a tough period for the broader market: Scoring a return of 10 per cent a year, on average, isn’t as appealing when the broader market is doing okay. Indeed, the average annualized return for an ETF tracking the S&P 500 is 12 per cent over the past 10 years.

Lastly, deals can fall apart, offering significant downside risk. If Ottawa’s ruling on Friday had been a thumbs-down, and Shaw’s share price returned to its pre-takeover level, investors could be nursing a loss of 39 per cent from Thursday’s closing price.

Betting on a takeover looks good when it works. But there are no guarantees.