Merger Arbitrage Mondays – Leaf Group Accepts Graham Holdings’ Offer

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

The Genworth Financial (GNW) deal was finally officially terminated last week after years of delays. We tracked all the ups and downs for well over 4 years and posted 47 updates on the deal, making this the longest tracked deal in our Merger Arbitrage Tool (MAT). In spite of clearing all the U.S. federal and state regulatory hurdles, Genworth and China Oceanwide had to extend the completion of the merger almost 17 times due to years of government regulatory reviews in both the United States and Canada. Genworth sold its Canadian subsidiary to avoid continued delays in approvals in Canada.

Earlier this year both companies announced that they had put the deal on an indefinite hold. Three months later, Genworth exercised its right to terminate the deal in order to pursue its revised strategic plan, which includes a potential partial initial public offering of its U.S. MI (mortgage insurance) business.

This is the other risk in risk arbitrage where your capital gets tied up for an extended period of time due to regulatory issues and explains why deals like United HealthGroup’s acquisition of Change Healthcare (CHNG) and Lockheed Martin’s acquisition of Aerojet Rocketdyne (AJRD) are trading at significant discounts to the deal price.

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

There were no new deals announced in the Deals in the Works section last week.

SPAC Arbitrage

There were 8 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. Sarcos Robotics announced that it will become publicly listed through a merger transaction with Rotor Acquisition Corp (ROT).
  2. The Topps Company and Mudrick Capital Acquisition Corporation II (MUDS) announced a definitive agreement for a business combination that will result in Topps becoming a public company.
  3. Better Therapeutics, Inc. entered into a definitive merger agreement with Mountain Crest Acquisition Corp II (MCAD).
  4. CA Healthcare Acquisition Corp (CAHCannounced a definitive merger agreement with LumiraDx Limited.
  5. Rice Acquisition Corp. (RICE) announced an agreement to enter into a business combination with Aria Energy LLC and Archaea Energy LLC.
  6. Cellebrite DI Ltd. and TWC Tech Holdings II Corp. (TWCTU) announced they have entered into a definitive business combination agreement and plan of merger.

Weekly Spread Changes:

The table below shows weekly spread changes between April 2, 2021, and April 9, 2021.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
CXDC 1.04 Faith Dawn Limited and Faith Horizon (N/A) 15.38% 8.11% 7.27% All Cash
HCAP 8.74 Portman Ridge Finance Corporation (PTMN) 2.35 13.90% 7.21% 6.69% Cash Plus Stock
AEGN 28.45 New Mountain Capital, L.L.C. (N/A) -5.10% -7.53% 2.43% All Cash
XLNX 129.72 Advanced Micro Devices, Inc. (AMD) 82.76 9.95% 7.62% 2.33% All Stock
PMBC 8.97 Banc of California (BANC) 18.55 3.40% 1.67% 1.73% All Stock
MX 25.83 South Dearborn Limited (N/A) 12.27% 15.81% -3.54% All Cash
DOYU 10.3 HUYA Inc. (HUYA) 18.43 30.62% 35.08% -4.46% All Stock
AT 3.01 I Squared Capital (N/A) 0.66% 5.94% -5.28% All Cash
DSSI 10.9 International Seaways, Inc. (INSW) 19.15 -2.71% 2.88% -5.59% All Stock
SOGO 8.53 Tencent Parties (N/A) 4.34% 15.58% -11.24% All Cash

Deal Statistics:

Total Number of Deals Closed in 2021 50
Total Number of Deals Not Completed in 2021 3
Total Number of Pending Deals
Cash Deals 49
Stock Deals 19
Stock & Cash Deals 12
Special Conditions 4
Total Number of Pending Deals 84
Aggregate Deal Consideration $599.12 billion

New Deals:

  1. The acquisition of Leaf Group (LEAF) by Graham Holdings Company (GHC) for $323 million or $8.50 per share in cash.
  2. The acquisition of Century Bancorp (CNBKA) by Eastern Bankshares (EBC) for $642 million or $115.28 per share in cash.
  3. The acquisition of ORBCOMM (ORBC) by GI Partners of $1.1 billion or $11.50 per share in cash.
  4. The acquisition of Luminex Corporation (LMNX) by DiaSorin S.p.A. for $1.8 billion or $37.00 per share in cash. We added LMNX as a potential deal to the Deals in the Works section on February 25, 2021, and the price after the news of the potential deal came out was $33.01.

Deal Updates:

  1. On April 5, 2021, Tribune Publishing Company (TPCO) announced that its Board of Directors has determined that a revised, non-binding proposal from Newslight to acquire all of the outstanding shares of Tribune common stock for $18.50 per share in cash would reasonably be expected to lead to a “Superior Proposal” as defined in Tribune’s merger agreement with affiliates of Alden Global Capital. Newslight is an entity owned by the Chairman of Choice Hotels International Stewart Bainum and Swiss billionaire Hansjörg Wyss.
  2. On April 7, 2021, Advanced Micro Devices (AMD) and Xilinx (XLNX) announced that stockholders voted to approve their respective proposals relating to the pending acquisition of Xilinx by AMD.
  3. On April 7, 2021, shareholders of Atlantic Power Corporation (ATapproved the company’s merger with I Squared Capital at a special meeting of shareholders.

Closed Deals:

  1. The acquisition of SMTC Corporation (SMTX) by H.I.G. Capital on April 5, 2021. It took 91 days for this deal to be completed.
  2. The acquisition of Pluralsight (PS) by Vista Equity Partners on April 6, 2021. It took 114 days for this deal to be completed.
  3. The acquisition of MTS Systems Corporation (MTSC) by Amphenol Corporation (APH) on April 7, 2021. It took 119 days for this deal to be completed.

Terminated Deals:

  1. Genworth Financial (GNW) announced that it has exercised its right to terminate its merger agreement with China Oceanwide Holdings Group.

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) $13.45 $10.3 06/30/2021 30.62% 139.71%
SJR 03/15/2021 Rogers Communications Inc. (RCI) $32.40 $26.8 06/30/2022 20.90% 17.14%
CXDC 06/15/2020 Faith Dawn Limited and Faith Horizon (N/A) $1.20 $1.04 05/10/2021 15.38% 193.63%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $22.51 12/31/2021 14.39% 19.90%
HCAP 12/23/2020 Portman Ridge Finance Corporation (PTMN) $9.96 $8.74 06/30/2021 13.90% 63.43%
MX 03/26/2021 South Dearborn Limited (N/A) $29.00 $25.83 12/31/2021 12.27% 16.97%
XLNX 10/27/2020 Advanced Micro Devices, Inc. (AMD) $142.63 $129.72 12/31/2021 9.95% 13.76%
COHR 03/25/2021 II-VI Incorporated (IIVI) $289.35 $265.56 12/31/2021 8.96% 12.39%
ALXN 12/12/2020 AstraZeneca (AZN) $166.09 $155.01 09/30/2021 7.15% 15.17%
ATH 03/08/2021 Apollo Global Management, Inc. (APO) $54.04 $50.45 01/31/2022 7.11% 8.80%

List of all pending deals:

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

Conclusion:

Easy and abundant access to capital is leading to bidding wars for all kinds of assets whether it is single family homes that sell for $1 million over the asking price in Berkeley, California or companies that see multiple rounds of competing bids. We wrote a couple of weeks ago that,

“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.”

The new offer for Tribune Publishing is the latest example of this phenomenon. Investors have started expecting these competing offers and that can be the only likely explanation for the Leaf Group (LEAF) deal trading at a negative spread of 5.45%. This is all the more striking considering Leaf reached out to 10 financial and strategic buyers and six signed a confidentiality agreement. They accepted the offer from Graham Holding after not receiving a competing offer from any of the 10 parties they contacted.

Disclaimer: I have long positions in Change Healthcare (CHNG) and Brookfield Property Partners (BPY). 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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