Merger Arbitrage Mondays – April 9, 2012

  • April 8, 2012

Merger activity decreased last week with two new deals announced and three closing.

You can find all the active deals listed below in our Merger Arbitrage Tool that automatically updates itself during market hours.

I received a question last week from an investor asking about the number of deals that fall apart so that he could estimate the risk associated with this strategy. There is always the risk of a deal falling through and there is a reason this strategy is also referred to as “risk” arbitrage. Check out this post on MarketFolly.com discussing the risk in risk arbitrage. After querying our database, I found that 209 mergers completed successfully in 2010 and 13 mergers failed. The success rate was 94%. In 2011, 175 deals completed successfully and 7 failed, implying a success rate of 96%.

Despite the concerns about Europe, the last two years have been relatively favorable for equity markets and there is a good chance we may see failure rates increase for mergers during times of turmoil. Those are usually the times when this strategy actually becomes interesting as spreads widen even for deals that don’t face a financing burden. For an introduction to the strategy, check out March 2009 post covering the acquisition of Wyeth by Pfizer (PFE).

Deal Statistics:

Total Number of Deals Closed in 201243
Total Number of Pending Deals
Cash Deals34
Stock Deals12
Stock & Cash Deals5
Total Number of Pending Deals51
Total Deal Size$357.62 billion

New Deals:

  1. The acquisition of DDi Corp (DDIC) by Viasystems (VIAS) for $268 million or $13.00 per share in cash.
  2. The acquisition of Allos Therapeutics (ALTH) by Spectrum Pharmaceuticals (SPPI) for $206 million or $1.82 per share in cash plus one Contingent Value Right (CVR). This CVR entitles Allos stockholders to an additional payment of $0.11 per share in cash if certain European regulatory approval and commercialization milestones for FOLOTYN are achieved.

Deal Updates:

I received a couple of emails regarding the acquisition of China Advanced Construction Materials Group, Inc (CADC) as we had a closing date of March 31, 2012 in our database and the absolute spread on the deal is very high following a 9.33% drop in the stock last Friday. We have seen no communication about the deal from the company and will update the deal as more information becomes available. For now, we have updated the deal to reflect a closing date of 6/30/2012.

Closed Deals:

  1. The acquisition of Medco Health Solutions (MHS) by Express Scripts (ESRX) on April 2, 2012.
  2. The acquisition of Cogdell Spencer (CSA) by Ventas (VTR) on April 2, 2012.
  3. The acquisition of Taleo Corp (TLEO) by Oracle (ORCL) on April 5, 2012.

Top 10 deals with largest spreads:

SymbolAnnounced

Date

Acquiring

Company

Closing

Price

Last

Price

Closing

Date

ProfitAnnualized

Profit

CADC10/24/2011Novel Gain Holdings Limited (N/A)$2.65$2.0506/30/201229.27%130.28%
TUDO03/12/2012Youku Inc. (YOKU)$35.41$30.6809/30/201215.41%32.33%
VQ01/16/2012Denver Parent Corporation (N/A)$12.50$10.9806/30/201213.84%61.62%
INCB01/25/2012Old National Bancorp Capital (ONB)$24.40$22.8206/30/20126.91%30.74%
EP10/16/2011Kinder Morgan, Inc. (KMI)$32.30$30.4006/30/20126.23%27.75%
VIST01/26/2012Tompkins Financial Corporation (TMP)$12.33$11.7109/30/20125.32%11.16%
TAM01/19/2011LAN Airlines S.A. (LFL)$25.88$24.8406/30/20124.17%18.55%
OPXT03/26/2012Oclaro, Inc. (OCLR)$1.65$1.5906/30/20124.08%18.14%
SCMF03/27/2012Capital Bank Financial Corp (N/A)$2.88$2.7706/30/20123.97%17.68%
HGIC09/29/2011Nationwide Mutual Insurance Co (N/A)$60.00$58.1806/30/20123.13%13.92%

List of all pending deals:

The list of all pending deals is only available to InsideArbitrage Premium and Plus members.


SymbolAnnounced

Date

Acquiring

Company

Deal

Type

Closing

Value

Closing

Price

Last

Price

VolumeClosing

Date

ProfitAnnu.

Profit

+CADC10/24/2011Novel Gain Holdings Limited (N/A)All CashN/A$2.65$2.05123,84606/30/201229.27%130.28%
+TUDO03/12/2012Youku Inc. (YOKU)All Stock$1 billion$35.41$30.68124,57909/30/201215.41%32.33%
+VQ01/16/2012Denver Parent Corporation (N/A)All Cash$1.5 billion$12.50$10.98331,74206/30/201213.84%61.62%
+INCB01/25/2012Old National Bancorp Capital (ONB)All Stock$79.2 million$24.40$22.8290006/30/20126.91%30.74%
+EP10/16/2011Kinder Morgan, Inc. (KMI)Cash Plus Stock$21 billion$32.30$30.403,872,44906/30/20126.23%27.75%
+VIST01/26/2012Tompkins Financial Corporation (TMP)All Stock86 million$12.33$11.7110,37509/30/20125.32%11.16%
+TAM01/19/2011LAN Airlines S.A. (LFL)All StockN/A$25.88$24.84659,28606/30/20124.17%18.55%
+OPXT03/26/2012Oclaro, Inc. (OCLR)All Stock$177 million$1.65$1.591,216,02906/30/20124.08%18.14%
+SCMF03/27/2012Capital Bank Financial Corp (N/A)All CashN/A$2.88$2.77110,52606/30/20123.97%17.68%
+HGIC09/29/2011Nationwide Mutual Insurance Co (N/A)All Cash$760 million$60.00$58.1842,20106/30/20123.13%13.92%
+CNVO01/17/2012Blackbaud (BLKB)All Cash$275 million$16.00$15.5260,26104/15/20123.09%188.14%
+MMI08/15/2011Google (GOOG)All Cash$12.5 billion$40.00$38.836,966,78406/30/20123.01%13.41%
+PGN01/10/2011Duke Energy Corporation (DUK)All Stock$13.7 billion$54.24$52.743,599,35107/01/20122.84%12.47%
+CTBC10/26/2011Berkshire Hills Bancorp, Inc. (BHLB)All Stock$30 million$8.64$8.414,30004/30/20122.70%46.97%
+LOOP04/27/2011CoStar Group (CSGP)Cash Plus Stock$860 million$19.05$18.6061,22404/30/20122.43%42.29%
+GRRF01/12/2012Talenthome Management Limited (N/A)All Cash$71.45 milion$3.15$3.0834,40306/30/20122.27%10.12%
+SURW02/06/2012Consolidated Communications Holdings, Inc. (CNSL)All Cash$340.9 million$23.00$22.5738,50406/30/20121.91%8.48%
+GR09/21/2011United Technologies Corp. (UTX)All Cash$18.4 billion$127.50$125.15704,47106/30/20121.88%8.36%
+FFFD03/13/2012Great Western Bancorporation, Inc. (N/A)All Cash$41.5 million$30.58$30.1820008/31/20121.33%3.36%
+ABVT03/19/2012Zayo Group (N/A)All Cash$2.2 billion$84.00$82.97318,63212/31/20691.24%0.02%
+RVSN03/15/2012Avaya (N/A)All Cash$230 million$11.85$11.7294,47112/31/20691.11%0.02%
+EBTX03/06/2012Cadence Bancorp (N/A)All Cash$250 million$20.62$20.4055,60012/31/20121.08%1.48%
+SOA01/27/2012Eastman Chemical Company (EMN)Cash Plus Stock$4.7 billion$28.25$27.951,393,73006/30/20121.07%4.77%
+PCBC03/12/2012UnionBanCal Corp. (N/A)All Cash$1.51 billion$46.00$45.6125,53112/31/20120.86%1.17%
+ISTA03/26/2012Bausch + Lomb (N/A)All Cash$500 million$9.10$9.04265,92306/30/20120.66%2.95%
+CRIC12/28/2011E-House (China) Holdings (EJ)Cash Plus Stock$603 million$5.48$5.44151,13406/30/20120.66%2.95%
+CMFB12/20/2011Sandy Spring Bancorp Inc. (SASR)All Stock$25.4 million$14.43$14.344,20006/30/20120.62%2.77%
+SRLS02/13/2012Linden Capital Partners (N/A)All Cash$82 million$4.00$3.9889,12106/30/20120.50%2.24%
+NVLS12/14/2011Lam Research Corp (LRCX)All Stock$3.3 billion$47.79$47.561,369,01706/30/20120.48%2.15%
+PBY01/30/2012The Gores Group (N/A)All Cash$1 billion$15.00$14.93440,81106/30/20120.47%2.09%
+DDIC04/04/2012Viasystems Group Inc. (VIAS)All Cash$268 million$13.00$12.941,207,21507/31/20120.46%1.50%
+TRCR03/07/2012Nuance Communications (NUAN)All Cash$300 million$29.50$29.37212,87409/30/20120.44%0.93%
+AEA02/15/2012Grupo Elektra (N/A)All Cash$780 million$10.50$10.46480,62306/30/20120.38%1.70%
+ADGF03/19/2012TaylorMade-adidas Golf business (N/A)All Cash$70 million$10.80$10.764,41212/31/20690.37%0.01%
+TNB01/30/2012ABB Ltd (ABB)All Cash$3.9 billion$72.00$71.76728,13206/30/20120.33%1.49%
+RRR12/16/2011United Rentals, Inc. (URI)Cash Plus Stock$1.9 billion$22.73$22.65637,73306/30/20120.33%1.48%
+ALTH04/05/2012Spectrum Pharmaceuticals (SPPI)All Cash$206 million$1.82$1.81582,761,81606/30/20120.28%1.23%
+NST10/18/2010Northeast Utilities (NU)All Stock$4.17 billion$48.40$48.30588,13604/16/20120.21%10.76%
+ARCL03/05/2012PLATO Learning (N/A)All Cash$291 million$11.10$11.0883,30606/30/20120.18%0.80%
+ZOLL03/12/2012Asahi Kasei Corp (N/A)All Cash$2.21 billion$93.00$92.84198,70106/30/20120.17%0.77%
+CV07/12/2011Gaz metro Limited Partnership (N/A)All Cash$702 million$35.25$35.2066,51606/30/20120.14%0.63%
+CHUX02/06/2012Fidelity National Financial, Inc. (FNF)All Cash$221 million$9.85$9.85169,08606/30/20120.00%0.00%
+MDS03/13/2012TBC Corporation (N/A)All Cash$310 million$11.50$11.50200,45106/30/20120.00%0.00%
+DFG12/21/2011Tokio Marine Holdings (N/A)All Cash$2.7 billion$44.80$44.83275,78706/30/2012-0.07%-0.30%
+CRYP02/02/2012Amaya Gaming Group (N/A)All Cash$35.82 million$2.54$2.55108,83204/30/2012-0.39%-6.82%
+COMV03/26/2012Peak Merger Corp (N/A)All Cash$49 million$1.75$1.76567,36006/30/2012-0.85%-3.78%
+QSFT03/09/2012Insight Venture Partners (N/A)All Cash$2 billion$23.00$23.25538,74809/30/2012-1.08%-2.26%
+CHG02/21/2012Fortis Inc. (N/A)All Cash$1.5 billion$65.00$66.1998,40603/31/2013-1.80%-1.84%
+BXG11/14/2011BFC Financial Corporation (BFCF.PK)All StockN/A$4.42$4.6750,82306/30/2012-5.27%-23.45%
+PARL12/23/2011Perfumania Holdings, Inc. (PERF)All Stock$170 million$5.14$5.61191,52606/30/2012-8.45%-37.61%
+WOLF03/13/2012An affiliate of Apollo Global Management, LLC (N/A)All Cash$703 million$5.00$6.582,016,33906/30/2012-24.01%-106.88%