Merger Arbitrage Mondays – Kansas City Southern Agrees To Pay $700 Million To Walk Away

Merger activity decreased last week with three new deals announced and one deal completed.

The bidding war for Kansas City Southern (KCS) came to an end last week after the company’s Board of Directors determined that the acquisition proposal KCS received from Canadian National Railway Company (CN) constituted a superior proposal. Following this determination, KCS terminated the Canadian Pacific Railway (CP) merger agreement and entered into a merger agreement with CN (CNI). KCS paid CP a breakup fee of $700 million, which will be reimbursed by CN.

The deal between Kansas City and Canadian National has come through despite Canadian Pacific consistently arguing that a tie-up between Kansas City and Canadian National would have trouble getting approved by antitrust regulators. CN and KCS, however, are confident that they will obtain all necessary regulatory approvals. CN has also proposed a “plain vanilla” voting trust, which states that “Upon KCS shareholder approval of the transaction, and satisfaction of customary closing conditions, CN will acquire KCS shares and place them into the voting trust. KCS shareholders will receive the merger consideration immediately upon the closing of CN’s voting trust, which is expected to be in the second half of 2021.”

In an interesting turn of events, The US Surface Transportation Board (STB) has rejected the voting trust plan proposed by Canadian National when it has earlier agreed to a similar plan by Canadian Pacific Railway.

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 7 new SPAC IPOs and 3 new SPAC business combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

  1. Bright Machines and SCVX (SCVX) have entered into a definitive merger agreement that will result in Bright Machines becoming a publicly listed company.
  2. Redbox entered into a definitive agreement to combine with Seaport Global Acquisition Corp. (SGAM).
  3.  Jam City and DPCM Capital (XPOAentered into a definitive merger agreement that will result in Jam City becoming a publicly listed company.

Weekly Spread Changes:

The table below shows weekly spread changes between May 14, and May 21, 2021.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
FBC 45.61 New York Community Bancorp, Inc. (NYCB) 11.88 4.58% 3.01% 1.57% All Stock
DOYU 7.36 HUYA Inc. (HUYA) 14.78 46.60% 45.07% 1.53% All Stock
CCRC 6.17 Taiying Group Ltd. and Taiying International Inc. (N/A) 0.00 5.35% 3.83% 1.52% All Cash
UFS 54.25 Paper Excellence (N/A) 2.30% 0.95% 1.35% All Cash
WBT 19.79 The Middleby Corporation (MIDD) 165.58 3.75% 2.40% 1.35% All Stock
SOGO 8.42 Tencent Parties (N/A) 5.70% 8.01% -2.31% All Cash
TRMT 6.08 RMR Mortgage Trust (RMRM) 11.99 2.55% 5.25% -2.70% All Stock
MX 24.03 South Dearborn Limited (N/A) 20.68% 27.36% -6.68% All Cash
CHMA 4.33 Amryt Pharma (AMYT) 12.06 10.29% 18.20% -7.91% All Stock
HCAP 9.39 Portman Ridge Finance Corporation (PTMN) 2.34 5.58% 13.61% -8.03% Cash Plus Stock

Deal Statistics:

Total Number of Deals Closed in 2021 72
Total Number of Deals Not Completed in 2021 5
Total Number of Pending Deals
Cash Deals 44
Stock Deals 27
Stock & Cash Deals 16
Special Conditions 3
Total Number of Pending Deals 90
Aggregate Deal Consideration $725.39 billion

New Deals:

  1. The acquisition of Core-Mark Holding Company (CORE) by Performance Food Group Company (PFGC) for $2.5 billion in a cash plus stock deal. Under the terms of the transaction, Core-Mark shareholders will receive $23.875 per share in cash and 0.44 PFGC shares for each Core-Mark share.
  2. The acquisition of Altabancorp (ALTA) by Glacier Bancorp (GBCI) for $933.5 million in an all stock deal. Under the terms of the agreement, Alta shareholders are to receive 0.7971 shares of Glacier stock for each Alta share.
  3. The merger of Kansas City Southern (KSU) with Canadian National Railway Company (CNI) for $33.6 billion in a cash plus stock deal. Under the terms of the agreement, KCS shareholders will receive $200 in cash and 1.129 shares of CN common stock for each KCS common share.

Deal Updates:

  1. On May 20, 2021, Shaw Communications (SJR) announced that its shareholders have overwhelmingly voted in favour of the previously announced plan of arrangement for the proposed business combination with Rogers Communications (RCI).
  2. On May 21, 2021, Tribune Publishing Company (TPCO) announced that its stockholders voted to approve the definitive merger agreement with affiliates of Alden Global Capital at a special meeting of the Company’s stockholders.
  3. On May 21, 2021, FBL Financial Group (FFG) announced that its shareholders have approved the previously announced transaction under which Farm Bureau Property & Casualty Insurance Company will acquire all of the outstanding shares of FBL Financial Group.

Closed Deals:

  1. The acquisition of Aegion Corporation (AEGN) by New Mountain Capital on May 17, 2021. It took 90 days for this deal to be completed.

Terminated Deals:

  1. On May 21, 2021, Kansas City Southern (KSU)  terminated the CP merger agreement and entered into a merger agreement with CN (CNI).

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) $10.79 $7.36 06/30/2021 46.60% 447.56%
MX 03/26/2021 South Dearborn Limited (N/A) $29.00 $24.03 12/31/2021 20.68% 34.00%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $22.98 12/31/2021 12.05% 19.82%
OSN 12/17/2020 New Ossen Group Limited (N/A) $5.10 $4.59 06/30/2021 11.11% 106.73%
NEWA 10/02/2020 Crouching Tiger Holding Limited (N/A) $3.65 $3.29 06/30/2021 10.94% 105.10%
CHMA 05/05/2021 Amryt Pharma (AMYT) $4.78 $4.33 09/30/2021 10.29% 28.90%
SJR 03/15/2021 Rogers Communications Inc. (RCI) $32.40 $29.8 06/30/2022 8.72% 7.90%
XLNX 10/27/2020 Advanced Micro Devices, Inc. (AMD) $132.99 $122.81 12/31/2021 8.29% 13.64%
KSU 05/21/2021 Canadian National Railway Company (CNI) $317.74 $295.00 12/31/2021 7.71% 12.68%
COHR 03/25/2021 II-VI Incorporated (IIVI) $280.37 $260.83 12/31/2021 7.49% 12.32%

List of all pending deals:

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

Conclusion:

Merger Activity and SPAC business combination announcements declined slightly last week while SPAC IPOs ticked up. We expect to see the dual trends of consolidation in the regional banking industry and bidding wars continue to provide some interesting opportunities to arbitrageurs.

Disclaimer: I have long positions in Nuance Communications (NUAN), 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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