Merger Arbitrage Mondays – Multiple Deals In Bidding Wars

We live in very interesting times if you are an event-driven investor. On the one hand we had the partial implosion in SPACs that caused many of them to swing from trading at a premium to NAV to go the other way  and trade at a discount to NAV. On the other hand, merger arbitrageurs have been delighted by not just one deal in the midst of a counteroffer scenario but three of them at the same time. To top it all off, we are in the midst of a blow up in a leveraged hedge fund that caused multiple large cap companies to lose more than 50% of their value in the span of a week and Nomura Holdings to flag a possible $2 billion loss tied to those trades.

BIDU, DISCA, VIAC and GSX One Week Chart

BIDU, DISCA, VIAC and GSX One Week Chart

After nine rounds of counteroffers that included three different parties competing for it, Coherent (COHR) terminated its agreement with Lumentum Holdings (LITE) and decided to tie the knot with II-VI Incorporated (IIVI), bringing to an end a bidding war that lasted almost two months. Oddly enough this new deal now trades at a spread of over 9% or 11.91% annualized assuming the deal closes by the end of the year.

Merger activity increased last week with five new deals announced and two deals completed. We have seen 18 new deals announced this March, which is well above the 10 deals that were announced in March 2020 as the COVID-19 outbreak was escalating globally. By the end of March 2020, there were 26 deals trading with spreads of over 10%. It is a little surprising that we still have 7 deals trading with spreads over 10% right now.

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

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

SPAC Arbitrage

There were 20 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. ironSource, a leading business platform for the app economy, has entered into a definitive agreement to merge with Thoma Bravo Advantage (TBA), to bring to the public markets a highly-profitable and scalable business that provides a comprehensive business platform for app developers.
  2. Asia Vision Network and Malacca Straits Acquisition Company Limited (MLAC) have entered into a definitive business combination agreement.
  3. VELO3D, Inc. and JAWS Spitfire Acquisition Corporation (SPFR) have entered into a definitive business combination agreement.
  4. Renovacor, Inc. and Chardan Healthcare Acquisition 2 Corp. (CHAQ) have entered into a definitive business combination agreement.
  5. Redwire and Genesis Park Acquisition (GNPK) announced that they have entered into a definitive merger agreement that will result in Redwire becoming a publicly traded company.
  6. AeroFarms, a certified B Corporation and leader in vertical farming, announced today it has entered into an Agreement and Plan of Merger with Spring Valley Acquisition (SV).
  7. WeWork and BowX Acquisition Corp. (BOWXU) have entered into a definitive merger agreement, providing for a business combination that will result in WeWork becoming a publicly listed company.

Weekly Spread Changes:

The table below shows weekly spread changes between March 19, 2021, and March 26, 2021.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
NEWA 3.12 Crouching Tiger Holding Limited (N/A) 16.99% -1.08% 18.07% All Cash
DOYU 10.55 HUYA Inc. (HUYA) 20.63 42.75% 38.52% 4.23% All Stock
RUHN 3.26 RUNION Holding Limited (N/A) 0.00 7.36% 3.40% 3.96% All Cash
SJR 26.39 Rogers Communications Inc. (RCI) 47.58 22.77% 19.60% 3.17% Special Conditions
CXDC 1.07 Faith Dawn Limited and Faith Horizon (N/A) 12.15% 9.09% 3.06% All Cash
XLNX 123.14 Advanced Micro Devices, Inc. (AMD) 77.41 8.34% 10.88% -2.54% All Stock
APHA 17.33 Tilray, Inc. (TLRY) 22.08 6.78% 9.85% -3.07% All Stock
AEGN 28.71 New Mountain Capital, L.L.C. (N/A) -5.96% -1.53% -4.43% All Cash
IPHI 173.6 Marvell Technology Group Ltd. (MRVL) 46.97 0.87% 6.61% -5.74% Cash Plus Stock
CUB 74.8 Veritas and Evergreen Coast Capital Corporation (N/A) -6.42% 0.43% -6.85% All Cash

Deal Statistics:

Total Number of Deals Closed in 2021 39
Total Number of Deals Not Completed in 2021 2
Total Number of Pending Deals
Cash Deals 54
Stock Deals 20
Stock & Cash Deals 12
Special Conditions 3
Total Number of Pending Deals 89
Aggregate Deal Consideration $589.51 billion

New Deals:

  1. The merger of Pacific Mercantile Bancorp (PMBC) with Banc of California (BANC) for $235 million in an all stock deal. Under the terms of the agreement, holders of Pacific Mercantile common stock will receive 0.5 shares of Banc of California common stock for each share of Pacific Mercantile common stock they own.
  2. The acquisition of Coherent (COHR) by II-VI Incorporated (IIVI) for $6.84 billion in a cash plus stock deal. Under the terms of Coherent’s merger agreement with II-VI, each share of Coherent common stock will be exchanged for $220.00 in cash and 0.91 of a share of II-VI common stock at the completion of the transaction.
  3. The acquisition of Houston Wire & Cable Company (HWCC) by Omni Cable for $91 million or $5.30 per share in cash.
  4. The acquisition of MSG Networks (MSGN) by Madison Square Garden Entertainment (MSGE) for $1.74 billion in an all stock deal. Under the terms of the agreement, MSG Networks stockholders would receive 0.172 shares of MSG Entertainment Class A or Class B common stock for each share of MSG Networks Class A or Class B common stock they own. We added MSGN as a potential deal to the Deals in the Works section on March 10, 2021, and the price after the news of the potential deal came out was $20.49.
  5. The acquisition of MagnaChip Semiconductor Corporation (MX) by South Dearborn Limited for $1.4 billion or $29.00 per share in cash.

Deal Updates:

  1. On March 22, 2021, Cubic Corporation (CUB) confirmed that it recently received an unsolicited proposal from Singapore Technologies Engineering to acquire all of Cubic’s outstanding stock for $76 per share in cash.
  2. On March 22, 2021, Aegion Corporation (AEGN) announced that its Board of Directors has determined that an unsolicited, non-binding proposal received from a third party could reasonably be expected to result in a “Superior Proposal”. Under the terms of the proposal, the Third Party would acquire all outstanding shares of Aegion common stock for $28.50 per share in cash.
  3. On March 22, 2021, the HSR Waiting Period applicable to the consummation of the Merger between GW Pharmaceuticals (GWPH) and Jazz Pharmaceuticals (JAZZexpired on March 22, 2021.
  4. On March 23, 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 $230.00 in cash and 0.6724 of a share of Lumentum common stock at the completion of the transaction.
  5. On March 23, 2021, Marvell Technology Group (MRVL) announced that the State Administration for Market Regulation of the People’s Republic of China has approved the company’s previously announced proposed acquisition of Inphi Corporation (IPHI).
  6. On March 23, 2021, shareholders of Waddell & Reed Financial (WDRapproved the company’s merger with Macquarie Asset Management at a special meeting of shareholders.
  7. On March 23, 2021, shareholders of Sportsman’s Warehouse Holdings (SPWHapproved the company’s merger with The Great American Outdoors Group at a special meeting of shareholders.
  8. On March 23, 2021, shareholders of Urovant Sciences (UROVapproved the company’s merger with Sumitovant Biopharma at a special meeting of shareholders.
  9. On March 24, 2021, shareholders of Navios Maritime Containers (NMCIapproved the company’s merger with Navios Maritime Partners (NMM) at a special meeting of shareholders.
  10. On March 24, 2021, Tribune Publishing Co’s (TPCO) board has decided to stick with a buyout bid from its largest shareholder Alden Global despite getting a higher offer from Stewart Bainum after the hedge fund said it would not support an alternative deal.
  11. On March 24, 2021, Change Healthcare (CHNG) and UnitedHealth Group (UNH) each received a request for additional information and documentary materials from the DOJ in connection with the DOJ’s review of the Merger.
  12. On March 24, 2021, Aerojet Rocketdyne Holdings (AJRD) announced payment of the previously-declared $5.00 per share special cash dividend to holders of its common shares. Under the terms of the acquisition agreement, Aerojet Rocketdyne’s payment of the special dividend adjusts the consideration to be paid by Lockheed Martin (LMT) at closing from $56.00 per share to $51.00 per share.
  13. On March 25, 2021, Huntington Bancshares Incorporated (HBAN) and TCF Financial Corporation (TCF) jointly announced that each company’s shareholders have approved the proposed merger of TCF into Huntington at their respective special meetings of shareholders.
  14. On March 26, 2021, Tyler Technologies (TYL) and NIC (EGOV) announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in connection with the previously announced acquisition of NIC by Tyler.
  15. On March 26, 2021, shareholders of both Virginia National Bankshares Corporation (VABK) and Fauquier Bankshares (FBSSapproved the previously announced merger of Fauquier into Virginia National. The parties expect the Merger to be effective on April 1, 2021.

Closed Deals:

  1. The acquisition of SINA Corporation (SINA) by New Wave Holdings Limited on March 22, 2021. It took 175 days for this deal to be completed.
  2. The acquisition of Gridsum Holding (GSUM) by Gridsum Corporation on March 25, 2021. It took 175 days for this deal to be completed.

Terminated Deals:

  1. On March 25, 2021, Coherent (COHR) terminated the March 9, 2021 merger agreement between Coherent and Lumentum (LITE) and paid Lumentum the $217.6 million termination fee contemplated by their merger agreement in order to enter into a new merger agreement with II-VI Incorporated (IIVI).

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) $15.06 $10.55 06/30/2021 42.75% 165.99%
SJR 03/15/2021 Rogers Communications Inc. (RCI) $32.40 $26.39 06/30/2022 22.77% 18.11%
NEWA 10/02/2020 Crouching Tiger Holding Limited (N/A) $3.65 $3.12 06/30/2021 16.99% 65.96%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $22.64 12/31/2021 13.74% 18.04%
CXDC 06/15/2020 Faith Dawn Limited and Faith Horizon (N/A) $1.20 $1.07 05/10/2021 12.15% 103.13%
MX 03/26/2021 South Dearborn Limited (N/A) $29.00 $26.01 12/31/2021 11.50% 15.09%
SOGO 09/29/2020 Tencent Parties (N/A) $8.95 $8.05 07/31/2021 10.56% 30.83%
COHR 03/25/2021 II-VI Incorporated (IIVI) $284.20 $260.56 12/31/2021 9.07% 11.91%
XLNX 10/27/2020 Advanced Micro Devices, Inc. (AMD) $133.41 $123.14 12/31/2021 8.34% 10.95%
ATH 03/08/2021 Apollo Global Management, Inc. (APO) $53.65 $49.56 01/31/2022 8.25% 9.74%

List of all pending deals:

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

Conclusion:

The current inflation in asset prices driven by easy access to cheap capital has not just resulted in a large number of SPAC IPOs but also an uptick in both traditional deal activity. We are likely to see more bidding wars in the near future as attractive assets become scarce and capital is left chasing deals in a highly competitive environment.

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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