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Merger Arbitrage Mondays – Three New Deals, Four Completions And One Failed Deal

  • May 11, 2020

Merger activity increased last week with three new deals announced, four deals closing and one deal terminated.

After a three week lull, merger activity picked up again with three new deals announced. The hard hit energy services industry saw the merger of KLX Energy Services Holdings (KLXE)  with Quintana Energy Services (QES) in an all stock transaction. Both companies have been their stocks decline sharply this year with KLXE down 80% this year and QES down more than 77%. As we have written several times in the past, the segment of the energy industry that will be the hardest hit from this downturn will be the energy services companies followed by the exploration and production companies, followed by the refiners and then the transportation and pipeline companies. The bottom of the cycle will be marked by bankruptcies and mergers.

The second deal announced was the acquisition of Stemline Therapeutics (STML) by the Menarini Group. The stock appreciated from Friday’s close of $4.75 to $12.10 on Monday. Under the terms of the agreement, this deal consists of one non-tradeable Contingent Value Right (CVR) that will entitle each holder to an additional $1.00 in cash per share upon completion of the first sale of ELZONRIS in any EU5 country after European Commission approval. The acquisition of Portola Pharmaceuticals (PTLA) by Alexion Pharmaceuticals (ALXN) for a premium of over 130% was the third deal announced last week.

Apart from the new deals, last week also witnessed another active deal fall apart. Front Yard Residential Corporation (RESI) and Amherst Residential mutually terminated their merger agreement. Amherst agreed to not only pay RESI a $25 million termination fee but also agreed to purchase $55 million worth of RESI stock at $12.50 per share. They also extended RESI a two-year unsecured $20 million loan facility. Deals that fall apart can provide opportunities especially on account of forced selling by funds. I looked into RESI after the deal broke and the subsequent drop to the $8 level but came away unimpressed. With a position in American Homes 4 Rent (AMH), I did not want further exposure in this segment, especially when it came to a sub-par operator like RESI.

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

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