Aug. 8 (Bloomberg) -- Societe Generale SA closed a New York unit that traded shares of companies involved in takeovers, the latest firm to cut back or drop the strategy as mergers decline, said two people with knowledge of the decision.

The four-person group, led by William Kavaler, was dismantled last month and the traders were fired, said the people, who asked not to be named because the Paris-based bank doesn't plan to disclose the move. The team, which invested SocGen's own capital, had broken even since the beginning of the year, the people said.

Hedge-fund managers including Deephaven Capital Management LLC and Tisbury Capital Management LLP exited U.S. merger arbitrage this year after the global credit contraction reduced the number of takeovers and scuttled others that were already planned. Merger-arbitrage funds lost an average of 0.4 percent in the first half of 2008, according to data compiled by Hedge Fund Research Inc. in Chicago.

``Making money in merger arbitrage was pretty easy in 2006 and early 2007,'' said Nancy Havens-Hasty, founder of Havens Advisors LLC, a New York-based fund that has been trading since 1995. Beginning in the latter half of last year, ``people got really burned,'' she said.

Jim Galvin, a New York-based spokesman for SocGen, declined to comment.

When a publicly traded company agrees to be acquired, its shares usually trade below the offer price, reflecting the risk the deal may not be completed. Merger arbitragers typically buy the stock with the aim of profiting when the takeover closes. They also bet on stocks they consider acquisition targets.

Sallie Mae, Wendy's

The opportunity to profit from such trading has declined along with the drop in mergers. The value of global public- company takeovers fell 39 percent to $644 billion in the first half of 2008 from a year earlier, according to Bloomberg data.

Kavaler, 46, a managing director, and members of his group took part in conference calls hosted by takeover targets including SLM Corp. and Wendy's International Inc. last year, according to transcripts of the calls. That suggests they had bet on the deals.

SLM, also known as Sallie Mae, lost more than half its value last year after J.C. Flowers & Co. abandoned a plan to buy the Reston, Virginia-based student lender for $25.3 billion, one of a series of buyouts that collapsed after borrowing costs rose and the U.S. economy slowed. Other failures included Alliance Data Systems Inc., a Dallas-based credit-card processor, and Greenwich, Connecticut-based United Rentals Inc., the largest U.S. construction-equipment company.

Kerviel Fallout

Wendy's sought buyers for a year before agreeing in April to sell itself to billionaire Nelson Peltz's Triarc Cos. for $2.4 billion, less than the Dublin, Ohio-based hamburger chain's market value when the sale process began.

SocGen, France's second-biggest bank by market value, has been grappling with the global credit contraction as well as a record 4.9 billion-euro ($7.6 billion) trading loss from unauthorized bets by Jerome Kerviel. Second-quarter net income fell 63 percent to 644 million euros ($1 billion), the bank said on Aug. 5. It raised 5.5 billion euros in a March stock sale to replenish reserves.

Kavaler used to work at Laterman & Co., the New York-based fund founded by Bernard Laterman, and at Commerzbank AG, where he was head of U.S. risk arbitrage.

The departure of capital from merger arbitrage is benefiting the firms that still pursue it, Havens said.

``With so much money now out of the arb business, we've seen some great opportunities for good returns,'' she said.

To contact the reporters on this story: Zachary R. Mider in New York at zmider1@bloomberg.net; Josh Fineman in New York at jfineman@bloomberg.net.

Last Updated: August 8, 2008 10:13 EDT