Try reading about Hedge Fund Merger Arbitrage. It obviously doesn't work all of the time but it is interesting theory/strategy.
http://www.barclayhedge.com/research/educational-articles/hedge-fund-strategy-definition/hedge-fund-strategy-merger-arbitrage.html
With cash mergers, an acquiring company purchases the shares of the target company for cash. Until the acquisition is complete, the stock of the target company typically trades below the acquisition price. So, one can buy the stock of the target company before the acquisition, and then make a profit if and when the acquisition goes through. This is not arbitrage, however; this is a speculation on an event occurring.
With a stock-for-stock merger, an acquiring company exchanges its own stock for the stock of the target company.During a stock-for-stock merger, a merger arbitrageur buys the stock of the target company while shorting the stock of the acquiring company. So, when the merger is complete, and the target company’s stock is converted into the acquiring company’s stock, the merger arbitrageur simply uses the converted stock to cover his or her short position.
