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

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.

There was one new deal announced in the Deals in the Works section last week.

Weekly Spread Changes:

The table below shows weekly spread changes between May 1, 2020 and May 8, 2020.

There was a significant change in the weekly spread for Delphi Technologies (DLPH) after the company along with BorgWarner (BWA) amended certain terms of their merger agreement, whereby the parties agreed to a revised exchange ratio pursuant to which Delphi Technologies’ shareholders will receive 0.4307 shares of BorgWarner common stock, down 5% from the original share exchange ratio of 0.4534.

Deal Statistics:

New Deals:

1. The merger of Quintana Energy Services (QES) and KLX Energy Services Holdings (KLXE) for $54.93 million in an all stock deal. Under the terms of the Merger Agreement QES shareholders will receive 0.4844 shares of KLXE common stock for each share of QES common stock.
2. The acquisition of Stemline Therapeutics (STML) by Menarini Group for $677 million. Under the terms of the merger agreement, Stemline shareholders will be offered a total potential consideration of $12.50 per share, consisting of an upfront payment of $11.50 in cash and 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.
3. The acquisition of Portola Pharmaceuticals (PTLA) by Alexion Pharmaceuticals (ALXN) for $1.41 billion or $18.00 per share in cash.

Deal Updates:

1. On May 4, 2020, WESCO International (WCC) and communications MRO and OEM products announced it received approval from Mexico on April 30, 2020 for its planned merger with Anixter International (AXE).
2. On May 5, 2020, AbbVie (ABBV) and Allergan (AGN) announced that the U.S. Federal Trade Commission (FTC) has accepted the proposed consent order in connection with AbbVie’s pending acquisition of Allergan.
3. On May 5, 2020, Pacific Premier Bancorp (PPBI) and Opus Bank (OPB) received shareholder approval for the proposed merger of Pacific Premier Bancorp with Opus Bank.
4. On May 6, 2020, BorgWarner (BWA) and Delphi Technologies (DLPH) announced that the companies have amended certain terms of the definitive transaction agreement. Under the terms of the amendment, which has been approved by the boards of directors of both companies, BorgWarner consents to Delphi Technologies’ recent draw down of its revolver. The amended transaction agreement also provides for new closing conditions requiring that, at the time of the transaction closing, the total amount of Delphi Technologies’ outstanding revolver borrowings do not exceed $225 million, and net of its cash balances, do not exceed $115 million, and its net debt-to-adjusted EBITDA ratio does not exceed a specified threshold. As part of resolving the dispute, the parties have also agreed to a revised exchange ratio pursuant to which Delphi Technologies’ shareholders will receive 0.4307 shares of BorgWarner common stock for each Delphi Technologies share.
5. On May 7, 2020, Cincinnati Bell (CBB) announced that its shareholders approved all proposals related to its agreement to be acquired by a controlled subsidiary of Macquarie Infrastructure Partners.
6. On May 8, 2020, El Paso Electric Company (EE) and the Infrastructure Investments Fund (IIF) issued a statement in connection with the order issued by the Federal Energy Regulatory Commission (FERC) stating that the March 30, 2020 FERC order conditionally authorizing the transaction remains in full force and effect, and they continue to anticipate closing the transaction in the first half of 2020.

Closed Deals:

1. The acquisition of The Stars Group (TSG) by Flutter Entertainment (PDYPF) on May 5, 2020. It took 216 days for this deal to be completed.
2. The acquisition of Neon Therapeutics (NTGN) by BioNTech SE (BNTX) on May 6, 2020. It took 111 days for this deal to be completed.
3. The acquisition of Allergan (AGN) by AbbVie (ABBV) on May 8, 2020. It took 318 days for this deal to be completed.
4. The acquisition of Pope Resources (POPE) by Rayonier (RYN) on May 8, 2020. It took 114 days for this deal to be completed.

Deals Terminated: 

1. Front Yard Residential Corporation (RESI) announced that the Company and Amherst Residential have agreed to terminate the previously announced merger agreement.

Top 10 deals with largest spreads:

List of all pending deals:

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

Disclaimer: 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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