Why is JEF selling at a 6% discount to the shares on offer ($16.15 versus .81*$21.1 = $17.09)? Is it because the market does not believe the deal will go through? or because the market expects LUK's post-merger price to fall because it trades at a discount to net book value?
It's a normal risk premium for a merger. The spread will narrow after LUK goes xd for the .25 annual divvy, and as the JEF divvy nears. Also, as the perceived completion date nears, the time value of money will narrow the spread. As time decreases, the possible annualized gain on the spread will increase unless the spread narrows. Arbitrage will narrow the spread so long as the deal does not appear in jeopardy or delayed.