Merger Arbitrage Mondays – Extended Stay America Receives A Bump

Merger activity increased last week with five new deals announced and four deals completed. Three of the five deals announced last week were regional bank deals. We wrote the following about consolidation among regional banks in our June Special Situations newsletter:

“Beyond IPOs and buybacks, another trend we have noticed in the last several months is consolidation in the media and banking industry. Despite low interest rates impacting net interest margins and potential disruption from fintech companies, banks have done well on account of increased loan activity and fee-based revenue. The CARES Act and its associated PPP loans to businesses provided additional tailwinds to banks and especially regional banks. These tailwinds combined with significant consolidation among regional banks has helped SPDR S&P Regional Banking ETF (KRE) notch gains of over 80% during the last year and more than 36% year-to-date. More than 15 out of the 89 active deals we track in our Merger Arbitrage Tool are bank mergers. I expect this trend to continue and rising interest rates will continue to help the banking sector unless we run into a recession.“

Another highlight from last week was the bidding war for Extended Stay America (STAY). In April 2020, The Blackstone Group acquired a 4.9% stake in the company and Starwood Capital Group acquired an 8.5% stake in the company. On March 15, 2021, the company entered into a definitive agreement to be acquired by Blackstone Real Estate Partners and Starwood Capital Group. Tarsadia Capital, the bidding competitor also acquired a 3.9% stake in the company in May of last year. Tarsadia has been urging the shareholders of Extended Stay to vote against the sale of the company to Blackstone and Starwood. On June 1, 2021, Blackstone and Starwood Capital amended the deal stating that they will now pay STAY shareholders an additional $1.00 per share in cash for a total consideration of $20.50 per share in cash. The transaction has received all regulatory approvals and is on track to close on June 16, 2021, pending shareholder approval at the reconvened special meetings that are to be held on June 11, 2021.

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

There was one new deal announced in the Deals in the Works section last week.

SPAC Arbitrage

There were 2 new SPAC business combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

1. Babylon Holdings Limited and Alkuri Global Acquisition Corp. (KURI) entered into a definitive merger agreement.
2. BigBear.ai and GigCapital4 (GIG) entered into a definitive merger agreement that will result in BigBear.ai becoming a publicly traded company.

Weekly Spread Changes:

The table below shows weekly spread changes between May 28, and June 4, 2021.

Deal Statistics:

New Deals:

1. The merger of First Midwest Bancorp (FMBI) with Old National Bancorp (ONB) for $2.86 billion in an all stock deal. Under the terms of the agreement, First Midwest stockholders will receive 1.1336 shares of Old National common stock for each share of First Midwest common stock they own.
2. The acquisition of Cloudera (CLDR) by Clayton, Dubilier & Rice and KKR for $5.3 billion or $16 per share in cash.
3. The acquisition of Select Bancorp (SLCT) by First Bancorp (FBNC) for $314.2 million in an all stock deal. Under the terms of the agreement, Select shareholders will receive 0.408 shares of First Bancorp’s common stock for each share of Select common stock.
4. The acquisition of Constellation Pharmaceuticals (CNST) by MorphoSys AG (MOR) for $958.32 million or $34 per share in cash.
5. The acquisition of Community Bankers Trust Corporation (ESXB) by United Bankshares (UBSI) for $303.3 million in an all stock deal. Under the terms of the agreement, shareholders of Community Bankers Trust will receive 0.3173 of United’s shares for each share of Community Bankers Trust.

Deal Updates:

1. On June 1, 2021, PRA Health Sciences (PRAH) and ICON Public Limited Company (ICLR) announced that they have obtained all regulatory approvals that are conditions to the closing of the Merger.
2. On June 1, 2021, Extended Stay America (STAY) and Blackstone Real Estate Partners announced that they have signed an amendment to their previously announced definitive merger agreement. Under the terms of the merger agreement, as amended, a 50/50 joint venture between funds managed by Blackstone and Starwood Capital will now pay STAY shareholders an additional $1.00 per share in cash for a total consideration of $20.50 per share in cash.
3. The HSR Waiting Period applicable to the consummation of the Merger between Nuance Communications (NUAN) and Microsoft (MSFT) expired on June 1, 2021.
4. The HSR Waiting Period applicable to the consummation of the Merger between Knoll (KNL) and Herman Miller (MLHR) expired on June 2, 2021.
5. On June 3, 2021, Aon (AON) announced that the firm has signed definitive agreements to sell its U.S. retirement business to Aquiline and its Aon Retiree Health Exchange™ business to Alight for total gross consideration of $1.4 billion. Aon and Willis Towers Watson (WLTW) continue to work toward obtaining regulatory approval in all relevant jurisdictions.
6. On June 4, 2021, Leaf Group (LEAF) announced that it received a letter from Graham Holdings Company (GHC) stating that that GHC will not increase the merger consideration of $8.50 in cash per share of Leaf Group common stock.

Closed Deals:

1. The acquisition of Boingo Wireless (WIFI) by Digital Colony Management on June 2, 2021. It took 93 days for this deal to be completed.
2. The acquisition of Protective Insurance Corporation (PTVCB) by The Progressive Corporation (PGR) on June 2, 2021. It took 106 days for this deal to be completed.
3. The acquisition of Cantel Medical (CMD) by STERIS (STE) on June 2, 2021. It took 141 days for this deal to be completed.
4. The acquisition of CoreLogic (CLGX) by Stone Point Capital and Insight Partners on June 4, 2021. It took 120 days for this deal to be completed.

Top 10 deals with largest spreads:

List of all pending deals:

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

Conclusion:

Activity on the merger front continues to increase as we come close to the end of the first half of the year. On the SPAC front, however, there were no new SPAC IPOs filed last week and only two new SPAC business combinations were announced. Chamath Palihapitiya, also called ‘The Pied Piper of SPACs” by The New Yorker, filed four new biotech-focused SPACs last week. These SPACs were launched under a partnership between Social Capital and hedge fund Suvretta Capital Management. Each of these SPACs is seeking to raise $200 million and has distinct focuses within the health care sector.

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.

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