Merger Arbitrage Mondays – Bidding Wars and Revised Agreements

Merger activity decreased last week with four new deals announced and one deal completed. There was a decline in SPAC activity as well with 25 new SPAC IPOs announced last week compared to 36 in the previous week. As indicated in our latest insider weekends post, the record pace of SPAC IPO’s this quarter resulted in 250 SPACs year-to-date compared to just 11 during the same period in Q1 2020.

I was discussing risks associated with the merger arbitrage strategy with a subscriber last Friday and the big drop a target company might experience if a deal fails. While only 4% or 5% of all deals fail as discussed in our 2017 post Still Collecting Pennies In Front Of A Bulldozer,  the post failure drop can be 30% or more depending on the premium paid for the target company. The flip side to this is bidding wars, which sometimes result in significantly higher prices as we saw with the multiple rounds of bids from both Verizon and AT&T for Straight Path Communications in 2017.

We are now seeing something similar with Coherent (COHR) and a couple of other deals. Coherent (COHR) has received multiple bids ever since it agreed to be acquired by Lumentum Holdings (LITE) on January 19, 2021. The timeline of the ensuing bidding war for Coherent is given below:

• On February 8, 2021, Coherent received an unsolicited acquisition proposal from MKS Instruments (MKSI).
• On February 12, 2021, Coherent (COHR) received an unsolicited acquisition proposal from II-VI Incorporated (IIVI).
• On February 16, 2021, Coherent’s board of directors determined to engage in discussions with II-VI Incorporated (IIVI) in response to its unsolicited proposal.
• On March 8, 2021, Coherent’s (COHR) board of directors determined that a revised acquisition proposal Coherent received from II-VI Incorporated (IIVI) constitutes a “Company Superior Proposal”.
• On March 10, 2021, Coherent (COHR) entered into a revised merger agreement with Lumentum Holdings (LITE).
•  On March 12, 2021, Coherent’s (COHR) board of directors determined that a revised acquisition proposal Coherent received from II-VI Incorporated (IIVI) on March 11, 2021 constitutes a “Company Superior Proposal”. Coherent has notifed Lumentum that it intends to terminate their amended merger agreement unless Coherent receives a revised proposal from Lumentum by March 17, 2021.

The original cash plus stock deal was worth $212.11 per Coherent share based on Lumentum’s closing price on January 19, 2021. The current offer from IIVI values the company at $264.69. As always, we track the entire history of this and every active deal in our Merger Arbitrage Tool (MAT) that automatically updates itself during market hours.

Apart from Coherent, Aegion (AEGN) also received a rival bid from Apollo Global Management (APO) and Pluralsight (PS) entered into a revised merger agreement with Vista Equity Partners.

There were two new deals announced in the Deals in the Works section last week.

SPAC Arbitrage

There were 25 new SPAC IPOs and 6 new SPAC business combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

1. Evolv Technology and NewHold Investment (NHIC) announced they have entered into a definitive merger agreement for a business combination that will result in Evolv becoming a publicly traded company.
2. Airspan Networks Inc. has entered into a definitive business combination agreement with and into New Beginnings Acquisition (NBA).
3. IonQ, Inc., announced that it has entered into a merger agreement with dMY Technology Group, Inc. III (DMYI).
4. Ambulnz to be renamed DocGo, Inc. and Motion Acquisition Corp. (MOTN) announced that they have entered into a definitive agreement for a business combination.
5. Holley and Empower (EMPW) announced that they have entered into a definitive merger agreement that will result in Holley becoming a publicly listed company.
6. KORE Wireless Group and Cerberus Telecom Acquisition (CTAC) entered into a definitive merger agreement.

Weekly Spread Changes:

The table below shows weekly spread changes between March 5, 2021, and March 12, 2021.

Deal Statistics:

New Deals:

1. The merger of Athene Holding (ATH) with Apollo Global Management (APO) for $6.01 billion in an all stock deal. Under the terms of the transaction, each outstanding Class A common share of Athene will be exchanged for a fixed ratio of 1.149 shares of Apollo common stock.
2. The merger of Bryn Mawr Bank Corporation (BMTC) with WSFS Financial Corporation (WSFS) for $976.4 million in an all stock deal. Under the terms of the agreement, stockholders of Bryn Mawr will receive 0.90 of a share of WSFS common stock for each share of Bryn Mawr common stock.
3. The acquisition of Talend (TLND) by Thoma Bravo for $2.4 billion or $66 per share in cash.
4. The acquisition of China Customer Relations Centers (CCRC) in a ‘going-private transaction’ by Taiying Group and Taiying International for $101.37 million or $6.50 per share in cash.

Deal Updates:

1. On March 8, 2021, Coherent (COHR) announced that the company’s board of directors has determined that a revised acquisition proposal Coherent received from II-VI Incorporated (IIVI) constitutes a “Company Superior Proposal” under Coherent’s pending merger agreement with Lumentum Holdings (LITE). Under the terms of II-VI’s revised proposal, each share of Coherent common stock would be exchanged for $170.00 in cash and 1.0981 shares of II-VI common stock at the completion of the transaction. Coherent has notifed Lumentum that it intends to terminate their merger agreement unless Coherent receives a revised proposal from Lumentum March 11, 2021.
2. On March 8, 2021, Pluralsight (PS) and Vista Equity Partners announced that they have entered into a revised definitive agreement under which Vista will acquire all outstanding shares of Pluralsight for $22.50 in cash through a tender offer.
3. On March 8, 2021, shareholders of RealPage (RP) approved the company’s merger with Thoma Bravo at a special meeting of shareholders.
4. On March 9, 2021, Aerojet Rocketdyne’s stockholders approved the merger agreement providing for the proposed acquisition of Aerojet Rocketdyne (AJRD) by Lockheed Martin Corporation (LMT).
5. On March 10, 2021, Coherent (COHR) announced that it has entered into a revised merger agreement with Lumentum Holdings (LITE). Under the terms of the revised merger agreement, each share of Coherent common stock will be exchanged for $175.00 in cash and 1.0109 shares of Lumentum common stock at the completion of the transaction.
6. On March 10, 2021, IHS Markit (INFO) and S&P Global (SPGI) each received a request for additional information and documentary material, often referred to as a “Second Request,” from the Antitrust Division of the U.S. Department of Justice.
7. On March 11, 2021, Australian antitrust regulators announced that they have started an informal review of Salesforce’s (CRM) planned takeover of Slack (WORK).
8. On March 11, 2021, IHS Markit (INFO) announced that its shareholders voted overwhelmingly to approve its merger with S&P Global (SPGI).
9. March 11, 2021: According to Bloomberg, Apollo Global Management (APO) has made a rival bid for Aegion (AEGN) offering more than New Mountain’s $26 per share but less than $30 per share.
10. On March 12, 2021, Coherent (COHR) announced that the company’s board of directors has determined that a revised acquisition proposal Coherent received from II-VI Incorporated (IIVI) on March 11, 2021 constitutes a “Company Superior Proposal” under the terms of Coherent’s pending revised merger agreement with Lumentum Holdings (LITE) dated March 10, 2021.
11. On March 12, 2021, shareholders of HighPoint Resources Corporation (HPR) approved the company’s merger with Bonanza Creek Energy (BCEI) at a special meeting of shareholders.

Closed Deals:

1. The acquisition of Oxford Immunotec Global (OXFD) by PerkinElmer (PKI) on March 8, 2021. It took 60 days for this deal to be completed.

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.

Conclusion:

Four deals received approval from their shareholders last week, amidst deals that had competitive bids and agreements being revised in spite of a decreased activity in both the M&A and SPAC areas. An article titled, ‘Short Sellers Boost Bets Against SPACs‘, that was published Sunday morning by the Wall Street Journal, resonates with our observation from last week, where we mentioned, “Just like there were opportunities on the long side of the SPAC trade, we are likely to see interesting opportunities on the short side after some of the more speculative SPAC business combinations stumble in the coming years.”

Disclaimer: I have long positions in Change Healthcare (CHNG) and Otelco (OTEL). 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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