Merger Arbitrage Mondays – Morgan Stanley acquires E-Trade Financial Corporation

Merger activity increased last week with five new deals announced and one deal closing.

The new deals announced last week were across different sectors. Two of the five new deals belong to the financial services sector, one from the real estate sector and two from the technology sector. According to Bloomberg, on December 4, 2019, Amherst Residential had announced that it was in advanced discussions to acquire Front Yard Residential (RESI). Front Yard’s shares went up by around 11% before trading stopped that day. On February 18, 2020, Front Yard entered into a definitive agreement to be acquired by Amherst.

The biggest highlight for last week was the acquisition of E*TRADE Financial Corporation (ETFC) by Morgan Stanley (MS). This announcement was made just months after E-Trade’s rivals Charles Shcwab (SCHW) and TD Ameritrade (AMTD) decided to merge in a $26 billion deal. It is interesting to see one of Wall Street’s biggest investment banks strike a deal with an online brokerage firm at a time where almost all brokerage firms have slashed their commissions and fees and are offering free trading. According to James Gorman, Chairman and CEO of Morgan Stanley, this acquisition will help position Morgan Stanley as a top player across all three channels: Financial Advisory, Self-Directed, and Workplace. He also said that E*TRADE represents an extraordinary growth opportunity for Morgan Stanley’s Wealth Management business. Check out Jason Zweig’s article in the Wall Street Journal about why investors need to understand the rules of the new game.

Besides definitive and confirmed new deals, we also look at potential deals that could be announced in the coming weeks or months. There were two potential deals announced last week. The Board of Directors of Blue Apron Holdings (APRN) announced that they are exploring a range of strategic alternatives, which could include the sale of the company. The company has posted a string of quarterly losses since it went public in June 2017 at a split adjusted $150/share. The stock closed at $2.98 last Friday. According to Reuters, French power utility Engie SA has approached Ameresco (AMRC) to express interest in acquiring it. This was the second potential deal announced last week.

Weekly Spread Changes

The table below shows weekly spread changes between February 14, 2020 and February 21, 2020.

Symbol Quote Acquiring
Company Quote
Last Week
Spread Change
PGNX 5.16 Lantheus Holdings, Inc. (LNTH) 16.57 -0.45% -9.69% 9.24% All Stock
ETFC 53.35 Morgan Stanley (MS) 52.42 2.50% 0.00% 2.50% All Stock
IOTS 12.33 Dialog Semiconductor Plc (DLGNF) 41.37 1.78% 0.00% 1.78% All Cash
CBB 12.62 Brookfield Infrastructure Partners L.P. (BIP) 55.45 -16.80% -18.16% 1.36% All Cash
FG 11.94 Fidelity National Financial, Inc. (FNF) 43.9 4.69% 3.39% 1.30% Special Conditions
INST 48.83 Thoma Bravo, LLC (N/A) 0.35% 2.81% -2.46% All Cash
AVX 21.69 Kyocera Corporation (N/A) 0.00 -10.10% -4.97% -5.13% All Cash
TSG 25.4 Flutter Entertainment PLC (PDYPF) 117.5 4.22% 10.00% -5.78% All Stock
YTRA 3.52 Ebix, Inc. (EBIX) 33.71 -4.23% 1.85% -6.08% All Stock
S 10.05 T-Mobile US, Inc. (TMUS) 98.57 0.59% 13.87% -13.28% All Stock

Having received all needed approvals, T-Mobile US (TMUS) and Sprint Corporation (S) continue to work towards closing their deal. The spread on the deal, which was over 90% earlier this month narrowed to less than 1% last week after the companies received approval from a federal judge to proceed with the merger and the companies renegotiated the deal in such a way that it did not hurt common shareholders. The exchange ratio for common shareholders remained 0.10256 T-Mobile shares for each Sprint share, while SoftBank took a small cut by agreeing to a ratio of 0.091 shares of T-Mobile for each share of Sprint or in other words 11 shares of Sprint for each share of T-Mobile.

Considering the spread on the deal is now less than 1% and my position in Sprint is unhedged, I will be closing out the rest of my position in the coming days.

Progenics Pharmaceuticals (PGNX) saw a 9.24% weekly change in its spread after entering into an amended and restated agreement with Lantheus Holdings (LNTH). Under the amended terms, the stock consideration to be received by Progenics shareholders has been increased and a non-tradeable contingent value right (“CVR”) was added to the deal.

The other updates announced last week for the active deals include shareholders approval for KEMET Corporation’s (KEM) acquisition by Yageo Corporation and Cleveland-Cliffs (CLF) and AK Steel Holding Corporation (AKS) receiving all necessary regulatory approvals for their merger.

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 26
Total Number of Deals Not Completed in 2020 2
Total Number of Pending Deals
Cash Deals 39
Stock Deals 23
Stock & Cash Deals 6
Special Conditions 4
Total Number of Pending Deals 72
Aggregate Deal Consideration $462.56 billion

New Deals:

  1. The acquisition of Legg Mason (LM) by Franklin Resources (BEN) for $6.5 billion or $50.00 per share in cash.
  2. The acquisition of Front Yard Residential Corporation (RESI) by Amherst Residential for $2.3 billion or $12.50 per share in cash. We added RESI as a potential deal to the Deals in the Works section on December 4, 2019, and the price after the news of the potential deal came out was $12.55.
  3. The acquisition of Adesto Technologies Corporation (IOTS) by Dialog Semiconductor (DLGNF) for $500 million or $12.55 per share in cash.
  4. The acquisition of E*TRADE Financial Corporation (ETFC) by Morgan Stanley (MS) for $13 billion in an all stock deal. Under the terms of the agreement, E*TRADE stockholders will receive 1.0432 Morgan Stanley shares for each E*TRADE share.
  5. The acquisition of AVX Corporation (AVX) by Kyocera Corporation for $2.95 billion or $21.75 per share in cash.

Deal Updates:

  1. February 17, 2020: According to Reuters, New York Attorney General Letitia James said her office would end the court challenge to the 2018 merger agreement between T-Mobile US (TMUS) and Sprint (S).
  2. On February 19, 2020, Anixter International (AXE) announced that it will hold a special meeting of its stockholderson April 9, 2020.
  3. On February 20, 2020, T-Mobile US (TMUS) and Sprint Corporation (S) announced that they have entered into an amendment to their definitive Business Combination Agreement to create the New T-Mobile. A separate arrangement entered into by SoftBank Group Corp. in connection with the amendment will result in an effective exchange ratio of approximately 11.00 Sprint shares for each T-Mobile share immediately following the closing of the merger, an increase from the originally agreed 9.75 shares. Sprint shareholders other than SoftBank will continue to receive the original fixed exchange ratio of 0.10256 T-Mobile shares for each Sprint share, or the equivalent of approximately 9.75 Sprint shares for each T-Mobile share. In addition, the amendment extends the “outside date” under the Business Combination Agreement to July 1, 2020.
  4. On February 20, 2020, Lantheus Holdings (LNTH) and Progenics Pharmaceuticals (PGNX) announced that they have entered into an Amended and Restated Agreement and Plan of Merger. Under the terms of the Amended Agreement Progenics stockholders will receive 0.31 of a share of Lantheus common stock, increased from 0.2502 under the Original Agreement, together with a non-tradeable contingent value right (“CVR”). The merger transaction is expected to close early in the second quarter of 2020.
  5. On February 20, 2020, KEMET Corporation (KEM) announced that its stockholders have voted to approve the proposed acquisition by Yageo Corporation.
  6. On February 21, 2020, Cleveland-Cliffs (CLF) and AK Steel Holding Corporation (AKS) announced that they have now received all of the necessary regulatory approvals in connection with their proposed merger transaction. The transaction is currently scheduled to close on March 13, 2020.

Closed Deals:

  1. The acquisition of Dermira (DERM) by Eli Lilly and Company (LLY) on February 2, 2020. It took 41 days for this deal to be completed.

Top 10 deals with largest spreads:

Symbol Announced
Profit Annualized
NTGN 01/16/2020 BioNTech SE (BNTX) $2.04 $1.53 06/30/2020 33.21% 94.69%
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $4.33 03/31/2020 25.40% 250.61%
FIT 11/01/2019 Google LLC (GOOG) $7.35 $6.45 06/30/2020 13.95% 39.79%
LACQ 12/30/2019 GTWY Holdings Limited (N/A) $11.50 $10.45 06/30/2020 10.05% 28.65%
QUMU 02/11/2020 Synacor, Inc. (SYNC) $1.97 $1.86 06/30/2020 5.94% 16.94%
FG 02/07/2020 Fidelity National Financial, Inc. (FNF) $12.50 $11.94 09/30/2020 4.69% 7.78%
SORL 11/29/2019 Ruili International Inc. (N/A) $4.72 $4.52 06/30/2020 4.42% 12.62%
TSG 10/02/2019 Flutter Entertainment PLC (PDYPF) $26.47 $25.4 09/30/2020 4.22% 7.01%
FSBC 12/19/2019 Evans Bancorp, Inc. (EVBN) $17.80 $17.08 06/30/2020 4.22% 12.02%
KEM 11/11/2019 Yageo Corporation (N/A) $27.20 $26.12 12/31/2020 4.13% 4.84%

List of all pending deals:

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

We currently have 72 active deals in our Merger Arbitrage Tool with an aggregate deal consideration of $462.56 billion, which is a significant increase from last week’s $440.26 billion. The spike in the aggregate deal consideration is because of  Morgan Stanley’s $13 billion deal to acquire E-Trade. Neon Therapeutics (NTGN) continues to hold the top position on our table with a 33.21% spread, followed by Genworth Financial (GNW) with 25.4% spread and Fitbit (FIT) with a spread of 13.95%.

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.

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