Merger Arbitrage Mondays – January 23, 2017

Merger Activity decreased last week with three new deals announced and four deals closing. You can find all the active deals listed below in our Merger Arbitrage Tool that automatically updates itself during market hours.

Deal Statistics:

New Deals:

1. The acquisition of Clayton Williams Energy (CWEI) by Noble Energy (NBL) for $3.2 billion in a cash plus stock deal. Under the terms of the agreement, Clayton Williams Energy shareholders will receive 2.7874 shares of Noble Energy common stock and $34.75 in cash for each share of common stock held. While the aggregate amount of cash and stock in the transaction will not change, on an individual basis shareholders will be able to elect to receive cash or stock, subject to proration.
2. The acquisition of Reynolds American (RAI) by British American Tobacco (BTI) for $49.4 billion in a cash plus stock deal. Under the terms of the agreement, BAT will acquire the 57.8% of RAI common stock that BAT does not currently own for $29.44 per share in cash and a number of BAT American Depositary Shares (ADS) representing 0.5260 of a BAT ordinary share. Each ADS represents two ordinary shares.
3. The acquisition of CoLucid Pharmaceuticals (CLCD) by Eli Lilly and Company (LLY) for $960 million or $46.50 per share in cash.

Deal Updates:

1. On January 3, 2017, Georgetown Bancorp (GTWN) invited its shareholders to attend a special meeting of stockholders that will be held at the headquarters of Georgetown Bancorp on February 13, 2017.
2. On January 12, 2017, CenturyLink (CTL) refiled its pre-merger notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in connection with its previously-announced acquisition of Level 3 Communications (LVLT). Each company first filed its HSR notification on December 12, 2016 and, following consultations with the U.S. Department of Justice, Antitrust Division, CenturyLink withdrew its original HSR notification on January 11, 2017.
3. On January 16, 2017, Syngenta (SYT) Chief Executive Erik Fyrwald said that he expects regulatory approval soon for ChemChina’s proposed $43 billion takeover of the Swiss pesticides and seeds group.
4. On January 16, 2017, LifeLock (LOCK) entered into Amendment No. 1 to the Merger Agreement. The Amendment provides Symantec (SYMC) the right, in certain circumstances, to extend the date of the Closing to the later of (x) February 9, 2017 and (y) the second business day after the satisfaction or waiver of the closing conditions set forth in Section 7.1 and Section 7.3 of the Merger Agreement.
5. On January 17, 2017, Universal American Corp (UAM) announced that it will hold a special meeting of our stockholders in connection with the proposed merger on February 16, 2017.
6. On January 17, 2017, Inteliquent (IQNT) held a special meeting of the Company’s stockholders. The proposal to adopt the Merger Agreement required the affirmative vote of stockholders holding at least a majority of the outstanding shares of Common Stock entitled to vote thereon. The transaction is expected to close in the first quarter of 2017. We have changed the closing date for this deal to March 31, 2017.
7. On January 18, 2017, Icahn Enterprises  (IEP) announced that it has extended the expiration of its cash tender offer, through its indirect wholly owned subsidiary, IEH FM Holdings , to acquire all of the outstanding shares of common stock of Federal-Mogul Holdings Corporation (FDML) not already owned by IEH or its affiliates to January 18, 2017.
8. January 18, 2017: Completion of the merger between Teleflex (TFX) and Vascular Solutions (VASC) is subject to the expiration or termination of the applicable waiting period under the HSR Act. Under the HSR Act, the merger may not be completed until the expiration of a 30 calendar day waiting period, which begins when Teleflex and Vascular Solutions file Premerger Notification and Report Forms under the HSR Act with the FTC and the Antitrust Division, unless such waiting period is earlier terminated by the FTC and the Antitrust Division. Teleflex and Vascular Solutions filed their Premerger Notification and Report Forms on December 15, 2016 in connection with the merger, and the waiting period expired on January 17, 2017.
9. On January 18, 2017, in accordance with the terms of the Agreement and Plan of Merger among Anthem (ANTM) and Cigna Corporation (CI), Anthem delivered written notice to Cigna that it has elected to extend the “Termination Date” through and including April 30, 2017. A federal judge is expected to block the proposed deal between Anthem and Cigna as soon as Thursday.
10. On January 18, 2017, AEP Industries (AEPI) announced that AEP stockholders voted to adopt the Agreement and Plan of Merger with Berry Plastics Group (BERY). AEP and Berry expect to complete the mergers on or about January 20, 2017.
11. On January 20, 2017, ChemChina announced that it has sought the U.S. anti-trust regulator’s approval for its planned $43 billion acquisition of Swiss crop protection and seed group Syngenta AG (SYT).
12. On January 20, 2017, JP Energy Partners (JPEP) announced that it has established a record date of January 30, 2017, and a meeting date of March 7, 2017, for a special meeting of its unitholders. We have extended the closing date for this deal to March 31, 2017.
13. On January 21, 2017, Rite Aid (RAD) shares were halted after falling 18% on reports that the FTC will not approve Walgreens Boots Alliance’s (WBA) acquisition of the company, even after the two sides promised store divestitures to Fred’s (FRED).

The timing of the Rite Aid report was interesting as it coincided with options expiration. There was another more positive report in the NY Post the week prior that implied that the closing of the deal was imminent. Quite clearly following some of these unfounded reports can prove to be hazardous to the health of your investments as they are just as likely to flip-flop as your least favorite politician.

As some of you may have noted from my disclosures at the bottom of these posts, I was long Rite Aid. The instrument I used for this exposure was call options as I perceived the risk of the deal to be higher than normal and I wanted to limit my downside in case the deal fell apart. When the stock spiked on the NY Post report the week prior, I sold half the call options for a profit and the other half expired worthless last Friday following this new negative report that caused the stock to crash by as much as 19% intraday. The overall position generated a small loss. The loss would have been much larger had I not sold half the position or had exposure to the common stock instead of call options.

The risk with options is that you might get the overall thesis right but not the timing and hence can suffer a loss even though the deal eventually closes. I had exposure to Apollo Education via call options as well and sold some along the way for a profit and exercised the rest at expiration because they were in the money and the spread on the deal had narrowed considerably.

Closed Deals:

1. The acquisition of Lake Sunapee Bank Group (LSBG) by Bar Harbor Bankshares (BHB) on January 13, 2017.
2. The acquisition of Media General (MEG) by Nexstar Broadcasting Group (NXST) on January 17, 2017. It took 356 days for this deal to be completed.
3. The acquisition of IntraLinks Holdings (IL) by Synchronoss Technologies (SNCR) on January 19, 2017. It took 44 days for this deal to be completed.
4. The acquisition of AEP Industries (AEPI) by Berry Plastics Group (BERY) on January 20, 2017. It took 148 days for this deal to be completed.

Top 10 deals with largest spreads:

List of all pending deals:

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

Disclaimer: I hold long positions in WhiteWave Foods (WWAV), Apollo Education (APOL), Syngenta (SYT), InterOil Corporation (IOC), Valspar (VAL) and Trina Solar (TSL). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.

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