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Merger Arbitrage Mondays – Bidding Wars and Revised Agreements

  • March 15, 2021

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:

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.

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