John Paulson cites high risk reward potential on deals such as Shire

While the risks in these investments are higher than the risks of announced deals, we attempt to mitigate the downside by choosing targets that trade at discounted valuations and that could rise even if no takeover occurs, as well as by either partially or fully hedging the market exposure by shorting sector ETF's and/or individual stocks against the longs. Although the risk is greater and the outcomes are less certain, the rewards can be high.