Merger Arbitrage Mondays – Introducing Weekly Spread Changes

Merger activity decreased last week with two new deals announced and three deals closing.

February 11, 2020 was a significant day for arbitrageurs as a deal that was widely expected to not succeed managed to see one of its key hurdles removed. After months of struggle with antitrust issues, T-Mobile (TMUS) finally received approval from a federal judge for its acquisition of Sprint (S); giving the company a stronger foothold as it plans to take on rivals Verizon and AT&T in the race for developing next-generation wireless 5G technology. The spread as you can see from our new “Weekly Spread Changes” section below, dropped from 77.74% to 13.87%.

According to Reuters, “T-Mobile’s German parent, Deutsche Telekom AG, plans to ask Sprint’s majority owner, Japan’s SoftBank Group, to agree to a lower price, arguing that Sprint’s fortunes have deteriorated following their agreement two years ago”. The deal is expected to close in the coming few weeks. I wrote the following in a premium post the day after the lawsuit was defeated,

Considering this is an all stock deal, T-Mobile already received a boost through the nearly 12% appreciation in its stock price today, which saw the stock touch an all time high. I would be very surprised if the companies tried to negotiate on price after such a long battle. Even if T-Mobile were to attempt a renegotiation, they would not just find SoftBank on the other side of the table but also Paul Singer’s Elliott Management, which has built a more than $2.5 billion stake in SoftBank Group.

The nearly 14% spread on the deal reflects both the potential renegotiation as well as a vote from the California Public Utility Commission. We have seen companies offer specific concessions to state regulators in the past to get their approval.

Weekly Spread Changes

This is a new feature we have introduced to the Merger Arbitrage Mondays post where we show the largest five spread changes week-over-week both in the negative direction (where spreads increase) as well as the positive direction (where spreads narrow like they did in the Sprint and T-Mobile deal). The table below shows weekly spread changes between February 7, 2020 and February 14, 2020.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
QUMU 1.98 Synacor, Inc. (SYNC) 1.29 4.89% 0.00% 4.89% All Stock
NTGN 1.45 BioNTech SE (BNTX) 30.75 33.60% 28.84% 4.76% All Stock
FIT 6.42 Google LLC (N/A) (GOOG) 14.49% 10.69% 3.80% All Cash
INST 47.66 Thoma Bravo, LLC (N/A) 2.81% 0.06% 2.75% All Cash
TSG 23.35 Flutter Entertainment PLC (PDYPF) 114 10.00% 7.79% 2.21% All Stock
PGNX 4.61 Lantheus Holdings, Inc. (LNTH) 16.64 -9.69% -7.72% -1.97% All Stock
PEGI 27.58 Canada Pension Plan Investment Board (N/A) -3.01% -0.30% -2.71% All Cash
MSBF 17.3 Kearny Financial Corp. (KRNY) 12.1 -9.08% -5.99% -3.09% All Stock
GNW 4.3 China Oceanwide Holdings Group Co., Ltd. (N/A) 26.28% 42.15% -15.87% All Cash
S 8.69 T-Mobile US, Inc. (TMUS) 96.48 13.87% 77.74% -63.87% All Stock

The Instructure (INST) and Thoma Bravo deal went through some changes last week. On February 12, 2020, Thoma Bravo’s revised offer of $48.50 was rejected by the Instructure board during a special meeting. The shareholder meeting which was supposed to be held the next day was moved to February 14, 2020. Thoma Bravo sweetened its offer again by shelling out an additional $1.40. The two companies finally amended their merger agreement by increasing the offer price to $49.00.

With the rapid growth of online shopping, the traditional brick and mortar retail spaces have been taking a hit. Simon Property Group (SPG), the largest owner of US malls, announced last week that it is acquiring Taubman Centers (TCO) at a premium of 51%. Taubman owns, manages or leases 26 super-regional shopping centers in the U.S. and Asia.

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

There were no new deals announced in the Deals in the Works section.

Deal Statistics:

Total Number of Deals Closed in 2020 25
Total Number of Deals Not Completed in 2020 2
Total Number of Pending Deals
Cash Deals 37
Stock Deals 22
Stock & Cash Deals 6
Special Conditions 4
Total Number of Pending Deals 69
Aggregate Deal Consideration $440.26 billion

New Deals:

  1. The acquisition of Taubman Centers (TCO) by Simon Property Group (SPG) for $8.79 billion or $52.50 per share in cash. We added TCO as a potential deal to the Deals in the Works section on February 4, 2020, and the price after the news of the potential deal came out was $31.46.
  2. The merger of Qumu Corporation (QUMU) and Synacor (SYNC) for $24.06 million in an all stock deal. Under the terms of the agreement, each share of Qumu common stock issued and outstanding as of the effective date of the merger will be converted into approximately 1.61 shares of Synacor common stock.

Deal Updates:

  1. On February 10, 2020, The Federal Trade Commission (FTC) granted early termination of the required waiting period under the Hart-Scott-Rodino Act with respect to the acquisition of Dermira (DERM) by Eli Lilly and Company (LLY).
  2. On February 11, 2020, T-Mobile US (TMUS) and Sprint (S) announced that after receiving a favorable decision in Federal Court in New York the companies are now taking final steps to complete their merger to create the New T-Mobile.
  3. On February 12, 2020, Shareholders of Tech Data Corporation (TECDapproved the company’s merger with Apollo Global Management (APO) at a special meeting of shareholders.
  4. On February 14, 2020, Instructure (INST) and Thoma Bravo announced that they have entered into an amendment to their definitive merger agreement under which Thoma Bravo has increased to $49.00 per share in cash its offer to acquire all outstanding shares of Instructure. The offer, which represents a best and final offer, is an increase from the prior $47.60 per share offer. The Special Meeting of Instructure Stockholders scheduled for February 14, 2020 will be convened and then adjourned again until February 25, 2020.

Closed Deals:

  1. The acquisition of Diplomat Pharmacy (DPLO) by OptumRx on February 10, 2020. It took 63 days for this deal to be completed.
  2. The acquisition of Care.com (CRCM) by IAC/InterActiveCorp (IAC) on February 11, 2020. It took 53 days for this deal to be completed.
  3. The acquisition of Ladenburg Thalmann Financial Services (LTS) by Advisor Group on February 14, 2020. It took 95 days for this deal to be completed.

Top 10 deals with largest spreads:

Symbol Announced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
Profit Annualized
Profit
NTGN 01/16/2020 BioNTech SE (BNTX) $1.94 $1.45 06/30/2020 33.60% 90.85%
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $4.3 03/31/2020 26.28% 218.00%
FIT 11/01/2019 Google LLC (GOOG) $7.35 $6.42 06/30/2020 14.49% 39.17%
S 04/29/2018 T-Mobile US, Inc. (TMUS) $9.89 $8.69 03/31/2020 13.87% 115.03%
LACQ 12/30/2019 GTWY Holdings Limited (N/A) $11.50 $10.42 06/30/2020 10.36% 28.02%
TSG 10/02/2019 Flutter Entertainment PLC (PDYPF) $25.68 $23.35 09/30/2020 10.00% 16.07%
QUMU 02/11/2020 Synacor, Inc. (SYNC) $2.08 $1.9800 06/30/2020 4.89% 13.23%
SORL 11/29/2019 Ruili International Inc. (N/A) $4.72 $4.51 06/30/2020 4.66% 12.59%
FSBC 12/19/2019 Evans Bancorp, Inc. (EVBN) $17.80 $17.08 06/30/2020 4.22% 11.40%
FG 02/07/2020 Fidelity National Financial, Inc. (FNF) $12.50 $12.09 09/30/2020 3.39% 5.45%

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

Leave A Comment

You must be logged in to post a comment.