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Merger Arbitrage Mondays – Frontyard Residential Gets Another Suitor

  • October 26, 2020

Merger activity increased last week with six new deals announced and one active deal completed. You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) that automatically updates itself during market hours.

One of the new deals announced was the acquisition of Front Yard Residential Corporation (RESI) by Pretium and Ares Management in an all cash deal worth $2.4 billion. As arbitrageurs might remember, this is the second go around for RESI after their $2.3 billion acquisition by Amherst Residential at a price of $12.50 per share failed in May of this year.

When the first deal for RESI failed, we wrote the following:

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.

Quite clearly I was very wrong. Ares Management found significant value where I did not and agreed to acquire RESI for $13.50 per share in cash. The macro environment has changed since I wrote this and there has been an exodus from cities and apartments to single family homes that has benefited both RESI and American Homes 4 Rent (AMH). Nevertheless, I am glad the situation worked out well in the end for shareholders.

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