Merger Arbitrage Mondays – April 9, 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:

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.

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