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Merger Arbitrage Mondays – April 11, 2016

  • April 10, 2016

Even as company insiders took a break from buying their own stock, the M&A folks stepped up their game with six new deals announced and eight closing. However what stood out was not the number of deals but the number of M&A related lawsuits that were filed and the regulatory actions taken to block certain deals.

The mutually agreed upon termination of the Pfizer – Allergan deal mentioned in the “Deal Updates” section below was driven by the Treasury Department unveiling a set of rules targeting inversions and specifically the Pfizer – Allergan deal. Then there was the lawsuit by the Justice Department to block the Halliburton – Baker Hughes merger. To top it off, Williams Companies (WMB) decided to sue its merger partner Energy Transfer Equity (ETE) to unwind a private offering by ETE that was not beneficial to Williams Companies. ETE investors bid the stock up 17% last week following this development.

These actions are reminders to merger arbitrageurs about some of the risks involved in this strategy. Some of the spreads are large for a reason. Towards the end of March, I was exchanging thoughts with an investor on Twitter who said, “Announced deal merger arb spreads are wider than they have been in years”.  My response was “Only for the ones with regulatory risk (Office depot, Anthem), in the energy sector or Chinese going private mergers”.

Speaking of Office Depot (ODP), the stock is up a whopping 48% over the last month after a federal judge expressed skepticism about the government’s case to block the merger with Staples (SPLS). We do have a new Chinese going private merger as discussed in the New Deals section below and unsurprisingly the spread on the deal is a large 9.64% (13.28% annualized).

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

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