Merger Arbitrage Mondays – Spreads Widen For Deals In The Retail and Hospitality Industries

Merger activity remained steady last week with three new deals announced and two deals closing but there was a lot of volatility especially earlier in the week that caused spreads to expand significantly at some point.

Two of the three new deals announced last week were in the pharmaceutical sector. Headquartered in Vancouver, Canada, Correvio Pharma is a specialty pharmaceutical company focused on commercializing hospital drugs. The company agreed to be acquired by ADVANZ PHARMA, a pharmaceutical company with a diverse portfolio of 200 niche medications. ADVANZ PHARMA was formerly known as Concordia International.

Founded in 2006 and headquartered in Watertown, Massachusetts, Tetraphase Pharmaceuticals (TTPH) is a biopharmaceutical company that develops various antibiotics for the treatment of serious and life-threatening multidrug-resistant infections. The company agreed to be acquired by AcelRx Pharmaceuticals (ACRX) in an all stock deal. The deal also includes one contingent value right (CVR), which would entitle the holders to receive aggregate payments of up to $12.5 million for the achievement of future XERAVA net sales milestones starting in 2021. We are classifying this deal as a “special conditions” type of deal in our Merger Arbitrage Tool (MAT) on account of the CVR.

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 last week.

Weekly Spread Changes

The table below shows weekly spread changes between March 13, 2020 and March 20, 2020.

Symbol Quote Acquiring
Company Quote
Last Week
Spread Change
SMRT 0.28 Kingswood Capital Management, L.P. (N/A) 0.00 221.43% 34.33% 187.10% All Cash
CDOR 5.04 NexPoint Hospitality Trust (N/A) 120.24% 44.35% 75.89% All Cash
CETV 2.48 PPF Group N.V. (N/A) 84.68% 14.21% 70.47% All Cash
CZR 5.45 Eldorado Resorts, Inc. (ERI) 8.82 68.68% 18.23% 50.45% Cash Plus Stock
YTRA 1.05 Ebix, Inc. (EBIX) 13.5 28.57% -18.55% 47.12% All Stock
QUMU 1.45 Synacor, Inc. (SYNC) 0.9 -0.07% 10.27% -10.34% All Stock
MFSF 27.54 Northwest Bancshares, Inc. (NWBI) 10.71 -6.67% 4.46% -11.13% All Stock
WEBK 26.5 Cambridge Bancorp (CATC) 49.7 8.78% 20.30% -11.52% All Stock
TIVO 6.19 Xperi Corporation (XPER) 11.34 -16.64% 2.26% -18.90% All Stock
TTPH 0.736 AcelRx Pharmaceuticals, Inc. (ACRX) 0.84 -28.06% 0.00% -28.06% All Stock

As the COVID-19 outbreak escalates globally, we saw significant changes in the spreads for the active deals in our table. Companies belonging to the consumer discretionary sector, like Stein Mart (SMRT), Tiffany & Co (TIF) and Caesars Entertainment Corporation (CZR) had to shut down stores and operations in response to the COVID-19 outbreak.

The Tiffany situation was interesting with the spread on the merger jumping over 20% early last week before settling lower towards the end of the week. There was some chatter about the drop in Tiffany being related to Citadel Investment unwinding its merger arbitrage position after the head of its merger arbitrage desk, Maulin Shah, leaving the company following a bad bet on the Sprint – T-Mobile merger. There was also some chatter about LVMH approaching Tiffany’s board to acquire shares on the open market at a discount, which frankly felt far fetched.

At a current spread of 7.6% or 27.82% annualized if the deal closes by the end of Q2, Tiffany is worth exploring further. These are trying times to be a brick-and-mortar retailer and it remains to be seen if LVMH will remain committed to the deal if this COVID-19 situation does not resolve itself by the end of Q2 2020.

Deal Statistics:

Total Number of Deals Closed in 2020 35
Total Number of Deals Not Completed in 2020 3
Total Number of Pending Deals
Cash Deals 40
Stock Deals 27
Stock & Cash Deals 5
Special Conditions 3
Total Number of Pending Deals 75
Aggregate Deal Consideration $538.81 billion

New Deals:

  1. The acquisition of Correvio Pharma (CORV) by ADVANZ PHARMA for $76 million or $0.42 per share in cash.
  2. The acquisition of Tetraphase Pharmaceuticals (TTPH) by AcelRx Pharmaceuticals (ACRX) for $14.4 million in an all stock deal. Under the terms of the agreement, Tetraphase stockholders will receive, for each share of Tetraphase common stock, 0.6303 of a share of AcelRx common stock and one contingent value right (CVR).
  3. The acquisition of TerraForm Power (TERP) by Brookfield Renewable Partners (BEP) for $10.5 billion in an all stock deal. Under the terms of the agreement, each share of Class A common stock of TerraForm Power will be acquired for consideration equivalent to 0.381 of a Brookfield Renewable unit. We added TERP as a potential deal to the Deals in the Works section on January 13, 2020, and the price after the news of the potential deal came out was $17.16.

 Deal Updates:

  1. On March 16, 2020, NexPoint said that Condor Hospitality Trust (CDOR) has accepted its request for an extension of time to close the deal from March 16, 2020 to March 23, 2020.
  2. On March 16, 2020, AquaVenture Holdings Limited (WAAS) announced that AquaVenture shareholders voted to approve the previously announced definitive merger agreement pursuant to which Culligan will acquire AquaVenture. The merger is expected to be completed by the end of March.
  3. On March 16, 2020, Genworth Financial (GNW) and China Oceanwide Holdings Group announced that Oceanwide has submitted supplemental materials to the New York State Department of Financial Services (NYDFS) and other U.S. insurance regulators to document the conditions that are expected to facilitate a reapproval by the NYDFS of the proposed acquisition of control by Oceanwide of Genworth’s New York-domiciled insurance company, Genworth Life Insurance Company of New York (GLICNY).
  4. On March 17, 2020, AbbVie (ABBV) and Allergan (AGN) announced that they have entered into a consent decree agreement with staff of the U.S. Federal Trade Commission (FTC) regarding AbbVie’s pending acquisition of Allergan.
  5. On March 17, 2020, Caesars Entertainment Corporation (CZR) announced that it will temporarily shut down its owned properties in North America, consistent with directives from various government bodies.
  6. March 18, 2020: In response to the coronavirus (COVID-19) outbreak, Stein Mart (SMRT) announced that it will temporarily close all stores from March 18, through March 31, 2020.
  7. On March 19, 2020, FGL Holdings (FG) announced the expiration of the 40-day “go-shop period” provided for under the terms of the previously announced definitive merger agreement, pursuant to which F&G will be acquired by Fidelity National Financial (FNF).
  8. On March 19, 2020, T-Mobile US (TMUS) announced that it is currently financially prepared to close its planned merger with Sprint (S), based on its previously secured commitments for bridge financing and senior credit facility financing, subject to the satisfaction of customary closing conditions under its commitment letter.
  9. On March 20, 2020, Tiffany & Co (TIF) pointed to a significant hit to results this year as it temporarily closed stores around the world, and said it had lost about half of its operating days in mainland China since the coronavirus outbreak.

Closed Deals:

  1. The acquisition of Pattern Energy Group (PEGI) by Canada Pension Plan Investment Board on March 16, 2020. It took 133 days for this deal to be completed.
  2. The acquisition of The Habit Restaurants (HABT) by YUM! Brands (YUM) on March 18, 2020. It took 72 days for this deal to be completed.

Top 10 deals with largest spreads:

Symbol Announced
Profit Annualized
SMRT 01/31/2020 Kingswood Capital Management, L.P. (N/A) $0.90 $0.2800 06/30/2020 221.43% 808.21%
CDOR 07/22/2019 NexPoint Hospitality Trust (N/A) $11.10 $5.04 03/23/2020 120.24% 43886.90%
CETV 10/27/2019 PPF Group N.V. (N/A) $4.58 $2.48 06/30/2020 84.68% 309.07%
CZR 06/24/2019 Eldorado Resorts, Inc. (ERI) $9.19 $5.45 06/30/2020 68.68% 250.67%
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $3.2400 03/31/2020 67.59% 2741.26%
TGE 12/17/2019 Blackstone Infrastructure Partners (N/A) $22.45 $14.1 06/30/2020 59.22% 216.15%
GILT 01/29/2020 Comtech Telecommunications Corp. (CMTL) $8.37 $5.47 10/31/2021 52.96% 32.88%
SORL 11/29/2019 Ruili International Inc. (N/A) $4.72 $3.19 06/30/2020 47.96% 175.06%
FG 02/07/2020 Fidelity National Financial, Inc. (FNF) $12.50 $8.51 09/30/2020 46.89% 89.13%
NTGN 01/16/2020 BioNTech SE (BNTX) $2.93 $2.07 06/30/2020 41.52% 151.55%

List of all pending deals:

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

The number of active deals in our Merger Arbitrage Tool increased last week to 75. The aggregate deal consideration increased to $538.81 billion, from last week’s $528.22 billion.

Stein Mart (SMRT) moved to the top of our table of ‘Top 10 deals with largest spreads’ with a spread of 221.43%, followed by Condor Hospitality Trust (CDOR) at 120.24% and Central European Media Enterprises (CETV) at 84.68%.

Disclaimer: I hold a long position in 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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