Merger Arbitrage Mondays – November 6, 2017

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

The announcement by Broadcom (AVGO) last week that it intends to move its headquarters to the U.S. from Singapore, caused Brocade’s stock to move up and the spread that was as wide as 9.54% last week immediately narrowed to within 1% of the deal price. The market felt that this removed the final regulatory obstacle for this deal to close as CFIUS approval was much more likely in light of this announcement. Instead of waiting for the last 1%, I closed half my position after this move.

The next day, I placed a limit order to sell the other half but yet another unexpected event caused the stock of Brocade (BRCD) to drop suddenly. As discussed in our Deals in the Works section, Dow Jones was reporting that Broadcom might make a bid for Qualcomm (QCOM). This news caused both Brocade (BRCD) and NXP Semiconductors (NXPI) to drop, as such a deal could put the acquisition of NXPI by Qualcomm at risk. This may turn out to be nothing more than a rumor, but if a deal is announced, it will be interesting to see how all these situations will play out because getting regulatory approval for these plethora of deals will be challenging.

There were four new deals announced in the Deals in the Works section.

Deal Statistics:

Total Number of Deals Closed in 2017 189
Total Number of Deals Not Completed in 2017 11
Total Number of Pending Deals
Cash Deals 40
Stock Deals 20
Stock & Cash Deals 7
Special Conditions 10
Total Number of Pending Deals 77
Total Deal Size $946.05 billion

New Deals:

  1. The acquisition of Capella Education Company (CPLA) by Strayer Education (STRA) for $820.96 million in an all stock deal. Under the terms of the agreement, Capella shareholders will receive 0.875 Strayer shares for each Capella share.
  2. The acquisition of CalAtlantic Group (CAA) by Lennar Corporation (LEN) for $9.3 billion in an all stock deal. Under the terms of the merger agreement, each share of CalAtlantic stock will be converted into the right to receive 0.885 shares of Lennar Class A common stock.
  3. The acquisition of Advanced Accelerator Applications (AAAP) by Novartis AG (NVS) for $3.9 billion or $82.00 per ADS (each representing 2 ordinary shares).
  4. The acquisition of Dynegy (DYN) by Vistra Energy (VST) for $12.3 billion in an all stock deal. Under the terms of the agreement, Dynegy shareholders will receive 0.652 shares of Vistra Energy common stock for each share of Dynegy common stock they own.
  5. The acquisition of Southcross Energy Partners (SXE) by American Midstream Partners (AMID) for $815 million in an all stock deal. Under the terms of the agreement, public unitholders of SXE will receive 0.160 AMID common units for each SXE common unit in a unit-for-unit merger.
  6. The acquisition of Clifton Bancorp (CSBK) by Kearny Financial (KRNY) for $408 million in an all stock deal. Under the terms of the agreement, each outstanding share of CSBK common stock will be exchanged for 1.191 shares of KRNY common stock.
  7. The acquisition of Ocera Therapeutics (OCRX) by Mallinckrodt Public Limited Company (MNK) for $42 million. Under the terms of the agreement, shareholders of Ocera Therapeutics will receive $1.52 per share in cash, plus one Contingent Value Right to receive one or more payments in cash of up to $2.58 per share (up to approximately $75 million) based on the successful completion of certain development and sales milestones.

Deal Updates:

  1. On November 2, 2017, Broadcom Limited (AVGO) announced that it intends to initiate a redomiciliation process to change the parent company of the Broadcom corporate group from a Singapore company to a U.S. corporation.
  2. On November 3, 2017, Sinovac Biotech (SVA) announced that on November 1, 2017, the Company received a delisting determination letter from the Staff of the Listing Qualifications Department of The Nasdaq Stock Market related to the delisting of the Company’s shares.
  3. On November 3, 2017, Four state attorneys general urged the Federal Communications Commission to rejectSinclair Broadcast Group’s (SBGI) proposed $3.9 billion acquisition of Tribune Media (TRCO), marking the latest hurdle for the controversial tie-up.
  4. November 4, 2017: AT&T’s (T) late-stage talks with U.S. officials over the company’s $85.4 billion takeover of Time Warner (TWXare dragging on as the Justice Department’s new antitrust chief takes a hands-on role in the review.

Closed Deals:

  1. The acquisition of Western Refining Logistics (WNRL) by Andeavor Logistics (ANDX) on October 30, 2017. It took 77 days for this deal to be completed.
  2. The acquisition of First South Bancorp (FSBK) by Carolina Financial Corporation (CARO) on November 1, 2017. It took 142 days for this deal to be completed.
  3. The acquisition of Pacific Continental Corporation (PCBK) by Columbia Banking System (COLB) on November 1, 2017. It took 296 days for this deal to be completed.
  4. The acquisition of Level 3 Communications (LVLT) by CenturyLink (CTL) on November 1, 2017. It took 366 days for this deal to be completed.
  5. The acquisition of Dominion Diamond Corporation (DDC) by The Washington Companies on November 1, 2017. It took 107 days for this deal to be completed.

Top 10 deals with largest spreads:

Symbol Announced
Profit Annualized
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $3.43 12/31/2017 58.31% 386.96%
MGI 01/26/2017 Ant Financial Services Group (N/A) $18.00 $14.54 12/31/2017 23.80% 157.92%
CBMX 07/31/2017 Invitae Corporation (NVTA) $8.33 $7.05 12/31/2017 18.16% 120.49%
TWX 10/22/2016 AT&T, Inc. (T) $107.50 $93.28 12/31/2017 15.24% 101.17%
SNI 07/31/2017 Discovery Communications, Inc. (DISCK) $90.00 $79.61 03/31/2018 13.05% 32.85%
NXTM 08/07/2017 Fresenius Medical Care (N/A) $30.00 $26.65 06/30/2018 12.57% 19.44%
YUME 09/05/2017 RhythmOne plc (RTHM.L) $4.25 $3.86 03/31/2018 10.08% 25.38%
SXE 11/01/2017 American Midstream Partners, LP (AMID) $2.12 $1.93 06/30/2018 9.84% 15.23%
MON 09/14/2016 Bayer AG (BAYRY) $128.00 $119.87 01/31/2018 6.78% 28.79%
GLBL 03/07/2017 Brookfield Asset Management Inc. (BAM) $5.10 $4.80 12/31/2017 6.25% 41.48%

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 Fortress Investment Group (FIG), CombiMatrix (CBMX), Brocade Communication Systems (BRCD) and NewStar Financial (NEWS). 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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