Merger Arbitrage Mondays – Merck Acquires Acceleron for $10.8 Billion

The third quarter of 2021 was an active one for M&A with 52 new deals announced amounting to over $207 billion. Third quarter M&A activity however did not eclipse what we saw in the prior quarter with 59 new deals announced in Q2 2021 with a total value of a little over $214 billion. The highlight of the third quarter, however, was the number of potential deals in the works announced. We added 34 potential deals to our list of deals in the works and seven of them were successful within the same quarter.

One of the seven successful potential deals was the acquisition of Acceleron Pharma (XLRN) by Merck (MRK) for $10.8 billion. We added Acceleron Pharma to our list of potential deals on September 27, 2021, when Bloomberg reported that the company was in advanced discussions to be acquired by a large pharmaceutical company. Bristol-Myers Squibb (BMY) which owns over 10% of company stock was expected to be a strong competing candidate. The price of XLRN went up to $178.87 from $167.75 after the announcement. Three days later, on September 30, 2021 XLRN and MRK entered into a definitive agreement, under which Merck, through a subsidiary, will acquire Acceleron for $180 per share in cash.

Acceleron was founded in June 2003, by a group of scientists in Cambridge, Massachusetts. The company was formed to discover and develop drugs based on transforming growth factors (TGF)-beta superfamily of proteins in metabolic disorders like obesity, diabetes, osteoporosis, and muscle-wasting conditions.

Acceleron has four drugs in clinical trials.

  • Luspatercept (ACE-536) for anemia
  • Sotatercept (ACE-011) for kidney disease
  • Dalantercept (ACE-041) for kidney cancer
  • ACE-083 for muscular disorders

With the acquisition of Acceleron, Merck also expects to strengthen its cardiovascular pipeline with a specific focus on pulmonary arterial hypertension (PAH), a progressive and life-threatening blood vessel disorder. The market appears to be a little less worried about this deal going through as the spread on the deal is 3.37% or almost 14% annualized if the deal closes by year end. In comparison, the spread on Pfizer’s acquisition of Trillium Therapeutics (TRIL) sports a spread of 4.88% and Sanofi’s acquisition of Kadmon Holdings (KDMN) has an even wider spread of 7.1%.

Merger activity increased last week with three new deals announced, six deals completed and one deal terminated. You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) that automatically updates itself during market hours.

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

SPAC Arbitrage

There were 9 SPAC IPOs filed and 3 new SPAC business combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

  1. Polestar Performance AB and its affiliates, the global electric performance car company, and Gores Guggenheim (GGPIentered into a definitive business combination agreement.
  2. SAITECH Limited, a Eurasia-based energy saving bitcoin mining operator that engages in the hosting of bitcoin mining machines for its clients, and TradeUP Global Corporation (TUGC), announced that they have entered into a definitive business combination agreement that will result in SAITECH becoming a publicly listed company.
  3. Amicus Therapeutics (FOLD) announced its intent to launch a next-generation genetic medicine company, Caritas Therapeutics through a definitive business combination agreement pursuant to which the Amicus gene therapy business will be acquired by ARYA Sciences Acquisition Corp IV (ARYD). The transaction will result in two independent publicly traded companies with attractive stand-alone investment profiles.

Weekly Spread Changes:

The table below shows weekly spread changes between September 17 and September 24, 2021.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
TEDU 1.16 Kidedu Holdings Limited (N/A) 244.83% 181.69% 63.14% All Cash
JOBS 68 Garnet Faith Limited (N/A) 0.00 16.25% 10.34% 5.91% All Cash
MGP 39.07 VICI Properties Inc. (VICI) 29.13 1.85% -0.46% 2.31% All Stock
XEC 87.2 Cabot Oil & Gas Corporation (COG) 22.25 2.44% 0.33% 2.11% All Stock
CLDB 27.8 Farmers National Banc Corp. (FMNB) 16.11 1.41% -0.58% 1.99% All Stock
SJR 29.25 Rogers Communications Inc. (RCI) 46.57 10.77% 11.69% -0.92% Special Conditions
RPAI 13.36 Kite Realty Group Trust (KRG) 21.4 -0.21% 0.75% -0.96% All Stock
GTS 35.12 GuideWell Mutual Holding Corporation (N/A) 0.00 2.51% 3.51% -1.00% All Cash
KSU 276.96 Canadian Pacific Railway Limited (CP) 66.32 1.56% 2.68% -1.12% Cash Plus Stock
CIT 53.4 First Citizens BancShares, Inc. (FCNCA) 862.47 0.14% 3.20% -3.06% All Stock

Deal Statistics:

Total Number of Deals Closed in 2021 141
Total Number of Deals Not Completed in 2021 11
Total Number of Pending Deals
Cash Deals 49
Stock Deals 33
Stock & Cash Deals 8
Special Conditions 3
Total Number of Pending Deals 93
Total Deal Size $889.26 billion

New Deals:

  1. The acquisition of Kraton Corporation (KRA) by DL Chemical for $2.5 billion or $46.50 per share in cash. We added KRA as a potential deal to the Deals in the Works section on July 6, 2021, and the price after the news of the potential deal came out was $36.37.
  2. The merger of Kirkland Lake Gold (KL) and Agnico Eagle Mines Limited (AEM) for $9.53 billion in an all stock deal. Under the terms of the agreement, Kirkland Lake Gold shareholders will receive 0.7935 of an Agnico Eagle common share for each Kirkland Lake Gold common share held.
  3. The acquisition of Acceleron Pharma (XLRN) by Merck (MRK) for $10.8 billion or $180 per share in cash. We added XLRN as a potential deal to the Deals in the Works section on September 27, 2021, and the price after the news of the potential deal came out was $178.87.

Deal Updates:

  1. On September 22, 2021, Intersect ENT (XENT) and Medtronic (MDTeach received a request for additional information and documentary materials from the FTC in connection with the FTC’s review of the Merger. The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 30 days after Intersect ENT and Medtronic have substantially complied with the Second Request, unless that period is extended voluntarily by the parties or terminated sooner by the FTC. Both parties intend to continue to work cooperatively with the FTC in its review.
  2. September 27, 2021: The Termination Date under the Merger Agreement between Magnachip Semiconductor Corporation (MX) and South Dearborn Limited has been extended from September 25, 2021 to December 25, 2021.
  3. On September 27, 2021, Shore Bancshares (SHBI) announced that it has received regulatory approval from the Office of the Comptroller of the Currency to convert Shore United Bank to a national bank and, for Severn Savings Bank (SVBI) FSB to be merged with and into Shore United Bank, National Association.
  4. On September 27, 2021, Eastern Bankshares (EBC) and Century Bancorp (CNBKA) jointly announced that they have received the necessary regulatory approvals from the Commonwealth of Massachusetts Division of Banks, the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve System to complete their proposed merger.
  5. On September 28, 2021, shareholders of GP Strategies Corporation (GPXapproved the company’s merger with Learning Technologies Group at a special meeting of shareholders.
  6. On September 29, 2021, shareholders of J. Alexander’s Holdings (JAXapproved the company’s merger with SPB Hospitality at a special meeting of shareholders.
  7. September 29, 2021: According to Reuters, a Canadian regulator asked for information from the public on telecom company Rogers Communications’s (RCI) planned purchase of Shaw Communications (SJR) to check for competition concerns.
  8. On September 29, 2021, Cimarex Energy (XECshareholders voted overwhelmingly to adopt the proposed merger agreement with Cabot Oil & Gas Corporation (COG).
  9. On September 30, 2021, State Auto Financial Corporation (STFCshareholders voted overwhelmingly to adopt the proposed merger agreement with Liberty Mutual Holding Company.
  10. On September 30, 2021, Welbilt (WBT) announced that the proposal to adopt and approve the Merger Agreement with Ali Holding was approved by Welbilt stockholders.
  11. On September 30, 2021, First Citizens BancShares (FCNCA) and CIT Group (CIT) jointly announced that the two companies have agreed to extend the merger agreement from October 15, 2021, to March 1, 2022.
  12. On September 30, 2021, Tarena International (TEDU) announced that it has delivered a written notice to Kidedu Holdings Limited, of the Company’s intention to terminate the Agreement and Plan of Merger.
  13. On October 1, 2021, Stamps.com (STMP) announced that it has received shareholder approval to be acquired by Thoma Bravo.
  14. On October 1, 2021, Banc of California (BANC) and Pacific Mercantile Bancorp (PMBC) announced that all required regulatory approvals for the mergers of Pacific Mercantile into the Company and Pacific Mercantile Bank into Banc of California have been received. The transaction is scheduled to close on or about October 18, 2021.

Closed Deals:

  1. The acquisition of J. Alexander’s Holdings (JAX) by SPB Hospitality on September 30, 2021. It took 90 days for this deal to be completed.
  2. The acquisition of Bank of Commerce Holdings (BOCH) by Columbia Banking System (COLB) on September 30, 2021. It took 98 days for this deal to be completed.
  3. The acquisition of Tremont Mortgage Trust (TRMT) by RMR Mortgage Trust (RMRM) on September 30, 2021. It took 157 days for this deal to be completed.
  4. The acquisition of Lydall (LDL) by Unifrax on October 1, 2021. It took 102 days for this deal to be completed.
  5. The acquisition of Altabancorp (ALTA) by Glacier Bancorp (GBCI) on October 1, 2021. It took 136 days for this deal to be completed.
  6. The acquisition of  Cimarex Energy (XEC) by Cabot Oil & Gas Corporation (COG) on October 1, 2021. It took 130 days for this deal to be completed.

Terminated Deals:

  1. On October 1, 2021, Five9 (FIVN) announced that its merger agreement with Zoom Video Communications (ZMhas been terminated by mutual agreement. Beyond regulatory concerns, the agreement did not receive the requisite number of votes from Five9 shareholders to approve the merger with Zoom.

Top 10 deals with largest spreads:

Symbol Announced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
Profit Annualized
Profit
TEDU 04/30/2021 Kidedu Holdings Limited (N/A) $4.00 $1.16 12/31/2021 244.83% 1015.48%
MX 03/26/2021 South Dearborn Limited (N/A) $29.00 $17.8 12/31/2021 62.92% 260.98%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $21.12 12/31/2021 21.92% 90.93%
AJRD 12/20/2020 Lockheed Martin Corporation (LMT) $51.00 $42.55 12/31/2021 19.86% 82.37%
XLNX 10/27/2020 Advanced Micro Devices, Inc. (AMD) $176.56 $151.87 12/31/2021 16.26% 67.44%
JOBS 06/21/2021 Garnet Faith Limited (N/A) $79.05 $68 12/31/2021 16.25% 67.40%
SJR 03/15/2021 Rogers Communications Inc. (RCI) $32.40 $29.25 06/30/2022 10.77% 14.61%
SOLY 05/10/2021 Allergan Aesthetics (N/A) $22.60 $20.49 12/31/2021 10.30% 42.71%
MSON 07/29/2021 Bioventus Inc. (BVS) $28.00 $25.44 12/31/2021 10.06% 41.74%
XONE 08/11/2021 Desktop Metal, Inc. (DM) $25.50 $23.27 12/31/2021 9.58% 39.75%

List of all pending deals:

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

Conclusion:

We wrote the following with respect to the Five9 deal last week,  “In the case of the Five9 – Zoom deal, there is evident risk involved with respect to regulatory approvals with Five9 having operations in Russia and Zoom having ties in China.” The companies mutually terminated their merger agreement after Five9 shareholders rejected the deal.

Disclaimer: I have long positions in Nuance Communications (NUAN), Change Healthcare (CHNG) and Trillium Therapeutics (TRIL). I also have put options in Change Healthcare. 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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