Merger Arbitrage Mondays – Coherent Shareholders Delighted By Another Round Of Counteroffers

Merger activity remained steady last week with four new deals announced and six deals completed.

Two of the largest deals of this year were announced last week. Headquartered in Calgary, Canada, Shaw Communications (SJR) operates as a connectivity company through wireline and wireless systems. The company entered into an agreement to be acquired by Rogers Communications (RCI). As part of the transaction the combined company plans to invest $2.5 billion in 5G networks over the next five years across Western Canada. The spread on this deal at nearly 20% is high on account of regulatory concerns and an expected closing in the first half of 2022.

On July 31, 2020, we had added Kansas City Southern (KSU) as a potential deal in the works after The Wall Street Journal had announced that, “A group of big buyout investors is considering a takeover bid for railroad operator Kansas City Southern that could be worth more than $21 billion and mark a big bet on U.S.-Mexico trade.” On Sunday, March 21, 2021, KSU entered into an agreement to be acquired by Canadian Pacific Railway Limited (CP) in a cash plus stock transaction. The two step merger process the companies have come up with is interesting and reduces regulatory risks for both shareholders and arbitrageurs. The two step process is described in the press release as follows,

“First, CP will establish a “plain vanilla”, independent voting trust to acquire the shares of KCS. Upon shareholder approval of the transaction, and satisfaction of customary closing conditions, CP will acquire KCS shares and place them into the voting trust. This step is currently expected to be completed in the second half of 2021, at which point KCS shareholders will receive their consideration.

CP’s placement of KCS shares into the voting trust will insulate KCS from control by CP until the STB authorizes control. KCS’ management and Board of Directors will continue to steward the company while it is in trust, pursuing KCS’ independent business plan and growth strategies.

The second step of the process is to obtain control approval from the STB and other applicable regulatory authorities. The STB review is expected to be completed by the middle of 2022. Upon obtaining control approval, the two companies will be integrated, unlocking the benefits of the combination.”

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

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

SPAC Arbitrage

There were 23 new SPAC IPOs and 7 new SPAC business combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

  1. IronNet Cybersecurity signed a definitive business combination agreement with LGL Systems Acquisition (DFNS).
  2. POINT Biopharma and Therapeutics Acquisition Corp. d/b/a Research Alliance Corp. I (RACAentered into a definitive business combination agreement.
  3. Greenrose Acquisition (GNRSentered into definitive agreements to acquire four cannabis companies (The Platform).
  4. eToro Group and FinTech Acquisition Corp. V (FTCV) announced that they have entered into a definitive business combination agreement.
  5. Offerpad, Inc. entered into a definitive merger agreement with Supernova Partners Acquisition Company (SPNV).
  6. Arbe Robotics Ltd. and Industrial Tech Acquisitions (ITAC), jointly announced that they have entered into a definitive business combination agreement to consummate a business combination.
  7. Rockley Photonics, Ltd. entered into a definitive agreement to combine with SC Health Corp. (SCPE).

Weekly Spread Changes:

The table below shows weekly spread changes between March 12, 2021, and March 19, 2021.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
HPR 5.5 Bonanza Creek Energy, Inc. (BCEI) 32.39 -32.86% -50.77% 17.91% All Stock
AEGN 27.42 New Mountain Capital, L.L.C. (N/A) -1.53% -10.74% 9.21% All Cash
FBSS 20.62 Virginia National Bankshares Corporation (VABK) 31.98 4.69% -0.87% 5.56% All Stock
AT 2.83 I Squared Capital (N/A) 0.00 7.07% 3.77% 3.30% All Cash
DOYU 13.17 HUYA Inc. (HUYA) 24.99 38.52% 35.37% 3.15% All Stock
BMTC 48.05 WSFS Financial Corporation (WSFS) 51.96 -2.68% -0.40% -2.28% All Stock
NEWA 3.69 Crouching Tiger Holding Limited (N/A) -1.08% 3.99% -5.07% All Cash
APHA 19.34 Tilray, Inc. (TLRY) 25.35 9.85% 15.53% -5.68% All Stock
COHR 260.3 Lumentum Holdings Inc. (LITE) 83.54 -0.33% 6.77% -7.10% Cash Plus Stock
HCAP 8.59 Portman Ridge Finance Corporation (PTMN) 2.11 4.48% 11.62% -7.14% Cash Plus Stock

Deal Statistics:

Total Number of Deals Closed in 2021 37
Total Number of Deals Not Completed in 2021 1
Total Number of Pending Deals
Cash Deals 54
Stock Deals 18
Stock & Cash Deals 12
Special Conditions 3
Total Number of Pending Deals 87
Aggregate Deal Consideration $584.9 billion

New Deals:

  1. The acquisition of Shaw Communications (SJR) by Rogers Communications (RCI) for C$26 billion or C$40.5 per share in cash, or $32.40 per share based on the 80 US cents per CAD exchange ratio.
  2. The acquisition of GenMark Diagnostics (GNMK) by Roche (RHHBY) for $1.8 billion or $24.05 per share in cash. We added GNMK as a potential deal to the Deals in the Works section on February 10, 2021, and the price after the news of the potential deal came out was $16.86.
  3. The acquisition of Extended Stay America (STAY) by Blackstone Real Estate Partners and Starwood Capital Group for $6 billion or $19.50 per share in cash.
  4. The acquisition of Kansas City Southern (KSU) by Canadian Pacific Railway Limited (CP) for $29 billion in a cash plus stock deal. Under the terms of the agreement, common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held. We added KSU as a potential deal to the Deals in the Works section on July 31, 2020, and the price after the news of the potential deal came out was $171.85.

Deal Updates:

  1. On March 12, 2021, shareholders of Alaska Communications Systems Group (ALSKapproved the company’s merger with ATN International (ATNI) at a special meeting of shareholders.
  2. On March 15, 2021, Aegion Corporation (AEGNentered into an amendment to increase the consideration payable to holders of outstanding shares of Aegion common stock to $27.00 per share in cash from $26.00 per share in cash.
  3. On March 15, 2021, Aphria (APHA) announced that the special meeting of stockholders will be held on April 12, 2021.
  4. On March 15, 2021, Cubic Corporation (CUB) announced that on March 11, 2021, the FCO provided antitrust clearance for its Merger with Veritas and Evergreen Coast Capital Corporation and on March 15, 2021, the applicable waiting period under the HSR Act in connection with the Merger expired.
  5. On March 17, 2021, Coherent (COHR) announced that it has received a new acquisition proposal from Lumentum Holdings (LITE). Under the terms of Lumentum’s new proposal, each share of Coherent common stock would be exchanged for $220.00 in cash and 0.61 of a share of Lumentum common stock at the completion of the transaction.
  6. On March 18, 2021, Coherent (COHRconfirmed receipt of a revised acquisition proposal from II-VI Incorporated (IIVI). Under the terms of II-VI’s revised proposal, each share of Coherent common stock would be exchanged for $220 in cash and 0.91 of a share of II-VI common stock at the completion of the transaction. The Coherent board of directors determined that it constitutes a “Company Superior Proposal” . Accordingly, Coherent has notifed Lumentum that it intends to terminate their merger agreement unless Coherent receives a revised acquisition proposal from Lumentum by March 22, 2021.
  7. On March 18, 2021, Newater Technology (NEWA) announced that in light of a legal claim filed by Fulcan Capital Partners against the Company, the extraordinary general meeting of the shareholders of the Company, originally scheduled on March 19, 2021 has been postponed pending further notice.
  8. On March 19, 2021, Boston Private Financial Holdings (BPFH) announced that the special meeting of stockholders will be held on April 27, 2021 and The Boston Private Board unanimously recommends that shareholders vote on the WHITE proxy card “FOR” the proposed transaction with SVB Financial (SIVB).

Closed Deals:

  1. The acquisition of Viela Bio (VIE) by Horizon Therapeutics (HZNP) on March 15, 2021. It took 42 days for this deal to be completed.
  2. The acquisition of QEP Resources (QEP) by Diamondback Energy (FANG) on March 17, 2021. It took 86 days for this deal to be completed.
  3. The acquisition of Red Lion Hotels Corporation (RLH) by Sonesta International Hotels Corporation on March 17, 2021. It took 77 days for this deal to be completed.
  4. The acquisition of China Distance Education Holdings Limited (DL) by Champion Distance Education Investments Limited and China Distance Learning Investments Limited on March 18, 2021. It took 107 days for this deal to be completed.
  5. The acquisition of Anworth Mortgage Asset Corporation (ANH) by Ready Capital Corporation (RC) on March 19, 2021. It took 102 days for this deal to be completed.
  6. The acquisition of Neos Therapeutics (NEOS) by Aytu BioScience (AYTU) on March 19, 2021. It took 99 days for this deal to be completed.

Top 10 deals with largest spreads:

Symbol Announced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
Profit Annualized
Profit
DOYU 10/12/2020 HUYA Inc. (HUYA) $18.24 $13.17 06/30/2021 38.52% 140.59%
KSU 03/21/2021 Canadian Pacific Railway Limited (CP) $275.08 $224.16 12/31/2021 22.71% 29.19%
SJR 03/15/2021 Rogers Communications Inc. (RCI) $32.40 $27.09 06/30/2022 19.60% 15.39%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $22.75 12/31/2021 13.19% 16.95%
XLNX 10/27/2020 Advanced Micro Devices, Inc. (AMD) $136.25 $122.88 12/31/2021 10.88% 13.99%
APHA 12/16/2020 Tilray, Inc. (TLRY) $21.25 $19.34 06/30/2021 9.85% 35.97%
ATH 03/08/2021 Apollo Global Management, Inc. (APO) $54.34 $49.64 01/31/2022 9.46% 10.96%
WLTW 03/09/2020 Aon plc (AON) $240.73 $220 06/30/2021 9.42% 34.40%
AJRD 12/20/2020 Lockheed Martin Corporation (LMT) $51.00 $46.61 12/31/2021 9.42% 12.10%
CXDC 06/15/2020 Faith Dawn Limited and Faith Horizon (N/A) $1.20 $1.1 05/10/2021 9.09% 67.72%

List of all pending deals:

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

Conclusion:

The four new deals announced last week were all multi-billion dollar deals, due to which, the Aggregate Deal Consideration increased significantly to $584.9 billion. SPAC activity continues at a steady pace with seven new business combinations announced last week. 84 SPAC IPOs have been filed so far in the month of March.

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.

Connect with me on LinkedIn: http://www.linkedin.com/in/asifsuria or follow me on Twitter@asifsuria

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