Merger Arbitrage Mondays – WESCO Seals The Deal For Anixter

The third week of January, 2020 saw four new deals, all of which include a stock consideration. Two of these deals were cash plus stock deals, one was an all stock deal and we are classifying one of them as a “special conditions” deal.

The tough battle between WESCO (WCC) and Clayton, Dubilier & Rice for Anixter (AXE) finally came to an end after WESCO outbid CD&R with an approximately $100 bid, which is a 40% premium to AXE’s closing price of $71.40 on October 29, 2019, the day before CD&R announced their original deal for Anixter priced at $81/share. This deal has been classified as a special conditions deal in our Merger Arbitrage Tool, since the stock portion of the deal is subject to adjustments.

The second deal announced last week was the Primo Water (PRMW) acquisition by Cott Corporation (COT). Primo Water’s stock appreciated 26% after the deal was announced. Cott intends to transition into a pure-play water solutions provider through this acquisition. Cott sold its soft drink division to Refresco for $1.25 billion in 2018 and it plans to evaluate strategic alternatives for its S&D Coffee and Tea business, including a sale of S&D.

The acquisition of Pope Resources (POPE) by Rayonier (RYN) was the third deal announced last week. This deal between the two timber companies is structured as a cash or stock deal wherein POPE shareholders have the right to elect to receive either shares of Rayonier or cash in exchange for each unit of POPE resources. POPE’s stock shot up more than 35% after the deal was announced. Tom Ringo, President and CEO of Pope Resources said in a statement, “This transaction will provide our unitholders with the opportunity to defer capital gain recognition and participate in Rayonier’s long-term upside potential, benefitting from a well-managed and diversified timberland portfolio while still enjoying a strong dividend yield. Like Pope Resources, Rayonier has a rich heritage of sustainably managing timberlands, and we look forward to working closely with them to realize the benefits of this combination on behalf of our unitholders.”

BioNTech (BNTX), a German biotechnology company announced its initial public offering last October. Barely a few months later, the company announced last week that it is acquiring Neon Therapeutics (NTGN) in order to expand its cell therapy portfolio.  The deal is structured as an all stock deal.  NTGN’s stock appreciated more than 38% after the deal was announced.

Some of the risks involved in risk arbitrage include regulatory approvals, shareholder approvals, state and international approvals that determine the timely completion of a deal. In the deal updates section for this week, Caesars Entertainment Corporation (CZR) and El Paso Electric Company (EE) received state approvals for their respective deals. OMNOVA Solutions (OMN) received international approval from the European Commission and Innophos Holdings (IPHS) received shareholders approval pertaining to its acquisition.

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

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

Deal Statistics:

Total Number of Deals Closed in 2020 10
Total Number of Deals Not Completed in 2020 2
Total Number of Pending Deals
Cash Deals 40
Stock Deals 20
Stock & Cash Deals 6
Special Conditions 6
Total Number of Pending Deals 72
Aggregate Deal Consideration $416.63 billion

New Deals:

  1. The acquisition of Anixter International (AXE) by WESCO International (WCC) for $4.5 billion in a cash plus stock deal. Under the terms of the agreement, each share of Anixter common stock will be converted into the right to receive $70.00 in cash, 0.2397 shares of WESCO common stock, and preferred stock consideration consisting of 0.6356 depositary shares, each whole share representing a fractional interest in a newly created series of WESCO perpetual preferred stock. Since the common stock and preferred stock considerations are subject to adjustments based on the conditions mentioned in the press release, we are adding this as a ‘special conditions’ deal using $100 as the closing price.
  2. The acquisition of Primo Water Corporation (PRMW) by Cott Corporation (COT) for $775 million in a cash plus stock deal. Under the terms of the merger agreement each share of Primo common stock will be exchanged for $5.04 in cash and 0.6549 common shares of Cott, or, at the election of Primo’s stockholders, for $14.00 in cash or 1.0229 common shares of Cott, subject to the proration procedures set forth in the merger agreement.
  3. The acquisition of Pope Resources (POPE) by Rayonier (RYN) for $656 million in a cash plus stock deal. Under the terms of the agreement, Pope Resources unitholders will have the right to elect to receive (i) 3.929 common shares of Rayonier, (ii) 3.929 units of Rayonier Operating Partnership LP, or (iii) $125 in cash in exchange for each unit of Pope Resources, subject to a proration mechanism as described below. Based on Rayonier’s 10-day volume-weighted average price, the transaction values Pope Resources’ limited partnership equity at $554 million, or $126.91 per unit (assuming 70% of the Pope Resources units are exchanged for equity consideration and 30% are exchanged for cash consideration). Pursuant to the terms of the agreement, elections will be subject to proration to ensure that the aggregate amount of cash, on the one hand, and Rayonier common stock and Rayonier operating partnership units, on the other hand, that are issued in the merger would be equal to the amounts issued as if every Pope Resources unit received 2.751 Rayonier common shares or Rayonier operating partnership units and $37.50 in cash. If elections for the Rayonier common shares and Rayonier operating partnership units are oversubscribed, then to reduce the effect of such proration Rayonier may, in its discretion, add additional equity (and decrease the amount of cash) payable to the Pope Resources unitholders making such elections.
  4. The acquisition of Neon Therapeutics (NTGN) by BioNTech SE (BNTX) for $67 million in an all stock deal. Under the terms of the agreement, Neon shareholders will receive 0.063 American Depositary Shares (ADS) (each ADS representing one ordinary share of BioNTech) in exchange for each of their shares of Neon.

Deal Updates:

  1. On January 15, 2020, OMNOVA Solutions (OMN) announced that its proposed acquisition by Synthomer has been approved by the European Commission.
  2. On January 15, 2020, Innophos Holdings (IPHS) announced that at a special meeting of stockholders, the Company’s stockholders voted to approve and adopt the previously announced acquisition of the Company by an affiliate of One Rock Capital Partners.
  3. On January 16, 2020, Eldorado Resorts (ERI) announced that the Company received approval from the Louisiana Gaming Control Board in connection with its pending acquisition of Caesars Entertainment Corporation (CZR).
  4. On January 17, 2020, El Paso Electric Company (EE) and the Infrastructure Investments announced that the Public Utility Commission of Texas (PUCT) approved IIF’s proposed acquisition of EPE as being in the public interest.
  5. On January 17, 2020, Foamix Pharmaceuticals (FOMX) announced that OrbiMed Advisors intends to vote in favor of the proposed merger with Menlo Therapeutics (MNLO) at the Company’s upcoming extraordinary general meeting of shareholders.

Closed Deals:

  1. The acquisition of SRC Energy (SRCI) by PDC Energy (PDCE) on January 14, 2020. It took 141 days for this deal to be completed.
  2. The acquisition of Audentes Therapeutics (BOLD) by Astellas Pharma on January 15, 2020. It took 44 days for this deal to be completed.
  3. The acquisition of ArQule (ARQL) by Merck & Co (MRK) on January 16, 2020. It took 38 days for this deal to be completed.

Deals Terminated:

  1. January 13, 2020: Anixter’s (AXE) prior agreement to be acquired by Clayton, Dubilier & Rice has been terminated, after the board of directors of Anixter approved a definitive merger agreement under which WESCO (WCC) will acquire Anixter.

Top 10 deals with largest spreads:

Symbol Announced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
Profit Annualized
Profit
S 04/29/2018 T-Mobile US, Inc. (TMUS) $8.43 $4.82 01/31/2020 74.80% 2275.13%
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $4.3 03/31/2020 26.28% 133.22%
NTGN 01/16/2020 BioNTech SE (BNTX) $2.09 $1.69 06/30/2020 23.69% 53.05%
ABDC 08/13/2019 Crescent Capital BDC, Inc. (N/A) $11.02 $9.22 03/31/2020 19.52% 98.97%
LACQ 12/30/2019 GTWY Holdings Limited (N/A) $11.50 $10.42 06/30/2020 10.36% 23.21%
FIT 11/01/2019 Google LLC (N/A) $7.35 $6.68 06/30/2020 10.03% 22.46%
TSG 10/02/2019 Flutter Entertainment PLC (PDYPF) $26.87 $25.16 09/30/2020 6.78% 9.71%
MLNX 03/11/2019 NVIDIA Corporation (NVDA) $125.00 $119.81 03/31/2020 4.33% 21.96%
AMTD 11/25/2019 The Charles Schwab Corporation (SCHW) $52.39 $50.53 12/31/2020 3.67% 3.86%
FSBC 12/19/2019 Evans Bancorp, Inc. (EVBN) $17.80 $17.24 06/30/2020 3.25% 7.27%

List of all pending deals:

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

Disclaimer: I hold long positions in Sprint (S) and Mellanox Technologies (MLNX). 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.

Connect with me on LinkedIn: http://www.linkedin.com/in/asifsuria or follow me on Twitter@asifsuria

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