Merger Arbitrage Mondays – June 5, 2017

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

There was an interesting situation with ChemChina’s acquisition of Syngenta (SYT) last week where the stock dropped well below ChemChina’s $92.94 acquisition price (ex-dividend) after the tender offer concluded. The spread on the deal last Tuesday had increased to 5% or 58% annualized. Arbitrageurs were worried that since this was not a domestic acquisition, a second-step merger may not be as simple as it is for U.S. listed companies where the acquiring company automatically pays out shareholders who did not tender their shares.

There were several concerns including a large withholding tax for shareholders who had not tendered their shares if ChemChina did not acquire as much as 98% of Syngenta stock before the deal closed.  Some of these risks were discussed in detail in this article. I called Syngenta’s investor relations and on the recommendation of a friend also wrote to the information agent on the tender offer to understand the structure of the second-step merger. The information agent (Georgsson LLC) got back to me within an hour indicating that they will issue a final press release with information about the results of the tender offer and the form of the second-step transaction.

The press release was issued early Wednesday morning indicating that 94.7% of the shares had been tendered and that ChemChina would “acquire further shares through market purchases or in off-market transactions” and “If the level of participation remains below 98 percent, ChemChina re-affirmed its intention to proceed to a squeeze-out merger.”

The spread immediately narrowed again on Wednesday but has not yet approached the $92.94 acquisition price. This was an unusual case of a merger providing multiple arbitrage opportunities and I was lucky enough to participate in it both times.

Deal Statistics:

New Deals:

1. The acquisition of CardConnect (CCN) by First Data Corporation (FDC) for $750 million or $15.00 per share in cash.
2. The acquisition of Atwood Oceanics (ATW) by Ensco (ESV) for $1.7 billion in an all stock deal. Under the terms of the merger agreement, Atwood shareholders will receive 1.60 shares of Ensco for each share of Atwood common stock.
3. The acquisition of Xactly Corporation (XTLY) by Vista Equity Partners for $354.28 million or $15.65 per share in cash.
4. Linde AG and Praxair (PX) announced that the companies have entered into a definitive business combination agreement to come together under a new holding company through an all-stock merger of equals transaction.Under the proposed terms of the transaction, Linde shareholders will be offered 1.54 shares in the new holding company for each Linde share, and Praxair shareholders will receive one share in the new holding company for each Praxair share. We are not adding this deal to our database as the transaction values can be determined only after the new company is formed.

Deal Updates:

1. On May 30, 2017, The states of Minnesota and Virginia approved the merger of CenturyLink (CTL) and Level 3 Communications (LVLT).
2. On May 31, 2017, Mead Johnson Nutrition Company (MJN) announced that its stockholders approved the acquisition of Mead Johnson by Reckitt Benckiser Group at a Special Meeting of Stockholders. The closing of the transaction is expected to occur at the end of the second quarter of 2017 or beginning of the third quarter of 2017.
3. On May 31, 2017, China National Chemical Corporation (ChemChina) announced the definitive end results for ChemChina’s offer to acquire Syngenta (SYT), according to which around 94.7 percent of shares have been tendered.
4. On June 2, 2017, Merus Labs International (MSLI) announced that it has obtained an interim order of the Supreme Court of British Columbia. The interim order authorizes Merus to, among other things, call a special meeting of the holders of common shares of Merus to consider and, if deemed advisable, pass a special resolution approving the previously announced arrangement under the Business Corporations Act (British Columbia) with Norgine B.V.
5. On June 2, 2017, Norsat International (NSAT) announced that the Minister responsible for the Investment Canada Act has served notice that there will be no order for review of the transaction under subsection 25.3(1) of the Act. Accordingly, this notice satisfies the Investment Canada Act condition for closing of the acquisition of Norsat by Hytera. Certain additional regulatory as well as securityholder approvals are still required and if obtained, the transaction is expected to close in the third quarter of 2017.
6. On June 2, 2017, EU antitrust regulators said that Qualcomm (QCOM) has not offered any concessions so far in its $38-billion bid for NXP Semiconductors (NXPI) increasing the risk of a lengthy investigation into the deal. Qualcomm had until June 1 to propose concessions to allay possible competition concerns over the biggest-ever deal in the semiconductor industry.

Closed Deals:

1. The acquisition of Cascade Bancorp (CACB) by First Interstate BancSystem (FIBK) on May 30, 2017. It took 194 days for this deal to be completed.
2. The acquisition of Stonegate Mortgage Corporation (SGM) by Home Point Financial Corporation on May 31, 2017. It took 125 days for this deal to be completed.
3. The acquisition of The Valspar Corporation (VAL) by The Sherwin-Williams Company (SHW) on June 1, 2017. It took 438 days for this deal to be completed.
4. The acquisition of Western Refining (WNR) by Tesoro Corporation (TSO) on June 1, 2017. It took 196 days for this deal to be completed.
5. The acquisition of FBR & Co. (FBRC) by B. Riley Financial (RILY) on June 1, 2017. It took 100 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 positions in Cabela’s (CAB), Rite Aid (RAD) and Fortress Investment Group (FIG). 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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