Merger Arbitrage Mondays – Ericsson To Acquire Vonage Holdings

Merger activity decreased last week with two new deals announced and five deals completed. There have been 22 deals announced in the month of November accounting for total deal value of over $69 billion.

Vonage Holdings (VG) was founded in the year 1998 by Jeff Pulver as a Voice over IP (VOIP) exchange. It was originally called Min-X.com. The company went on to become a VOIP service provider and changed its name to Vonage Holdings in 2001. Before going public in 2006, the company started offering subscription service in the United States, then expanded to Canada in 2004 and the United Kingdom in 2005. After several acquisitions starting 2013, Vonage refocused its business from a home phone provider to a global business cloud communications provider. As someone who once purchased Vonage shares in the low single digits, this transformation from a home phone provider to business services was key to Vonage’s recent success. I did well with that investment but would have done even better had I held on for a few more years.

Vonage’s products include Comunication APIs, Unified Communications and Contact Centers. The cloud-based Vonage Communications Platform (VCP) is the flagship of the company. VCP’s total revenue represented 80% of VG’s total consolidated revenue for Q3 2021, up from 74% a year ago.

(Source: Vonage Holdings Q3, 2021 Investor Presentation)

We added Vonage Holdings to our list of potential deals on August 31, 2021, when Bloomberg reported that activist investor Jana Partners had called on Vonage Holdings (VG) to hire advisers to explore strategic alternatives, including a possible sale of all or parts of the telecommunications services company. The price of Vonage, after this announcement was $14.10. On November 22, 2021, Ericsson entered into an agreement to acquire Vonage for $6.2 billion or $21 per share in cash, representing a premium of 28% to Vonage’s closing share price on November 19, 2021 of $16.37 per share. Börje Ekholm, President and CEO of Ericsson, said:

“The core of our strategy is to build leading mobile networks through technology leadership. This provides the foundation to build an enterprise business. The acquisition of Vonage is the next step in delivering on that strategic priority.”

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

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

SPAC Arbitrage

There were 6 SPAC IPOs filed and 2 new SPAC business combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

  1. MANSCAPED™ men’s lifestyle consumer brand and Bright Lights Acquisition (BLTS) have entered into a definitive business combination agreement that will result in MANSCAPED becoming a public company.
  2. Benessere Capital Acquisition (BENE) and eCombustible Energy an innovator and provider of customizable hydrogen-based fuel for thermal industrial applications, announced that the companies entered into a definitive merger agreement.

Weekly Spread Changes:

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

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
AZPN 145.16 Emerson Electric Co. (EMR) 90.31 10.22% 3.59% 6.63% Special Conditions
MX 18.3 South Dearborn Limited (N/A) 58.47% 53.85% 4.62% All Cash
MNTV 20.9 Zendesk (ZEN) 94.27 1.49% -0.99% 2.48% All Stock
SOLY 20.82 Allergan Aesthetics (N/A) 8.55% 6.50% 2.05% All Cash
SJR 28.75 Rogers Communications Inc. (RCI) 45.86 12.70% 10.92% 1.78% Special Conditions
PVG 13.76 Newcrest Mining Limited (NCMGY) 17.1995 1.05% 2.79% -1.74% All Stock
RIVE 15.8379 Mid Penn Bancorp, Inc. (MPB) 32.45 -0.98% 1.00% -1.98% All Stock
XLNX 223.95 Advanced Micro Devices, Inc. (AMD) 154.81 19.13% 21.26% -2.13% All Stock
ICBK 35.6 Nicolet Bankshares, Inc. (NCBS) 71.13 -4.09% -1.37% -2.72% All Stock
JOBS 54.19 Garnet Faith Limited (N/A) 45.88% 57.06% -11.18% All Cash

Deal Statistics:

Total Number of Deals Closed in 2021 175
Total Number of Deals Not Completed in 2021 13
Total Number of Pending Deals
Cash Deals 53
Stock Deals 31
Stock & Cash Deals 6
Special Conditions 4
Total Number of Pending Deals 94
Total Deal Size $1.01 trillion

New Deals:

  1. The acquisition of Vonage Holdings (VG) by Ericsson (ERIC) for $6.2 billion or $21 per share in cash. We added VG as a potential deal  to the Deals in the Works section on August 31, 2021, and the price after the news of the potential deal came out was $14.10.
  2. The acquisition of Goodrich Petroleum Corporation (GDP) by Paloma Partners VI Holdings for $480 million or $23 per share in cash.

Deal Updates:

  1. On November 18, 2021, Mid Penn Bancorp (MPB) and Riverview Financial Corporation (RIVE) announced that shareholders from both Mid Penn and Riverview overwhelmingly approved Mid Penn’s proposed acquisition of Riverview.
  2. On November 23, 2021, Supernus Pharmaceuticals (SUPN) announced that the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) with respect to Supernus’ proposed acquisition of Adamas Pharmaceuticals (ADMS) has expired.
  3. On November 23, 2021, Canadian Pacific Railway Limited (CP) and Kansas City Southern (KSU) announced that the Surface Transportation Board has accepted the joint CP-KCS merger application as complete.
  4. On November 26, 2021, Canadian Pacific Railway Limited (CP) and Kansas City Southern (KSU) announced that they have received the required regulatory pre-transaction control approvals from the Mexican Federal Economic Competition Commission and the Mexican Federal Telecommunications Institute for the previously announced proposed combination of KCS and CP.
  5. On November 26, 2021, Kirkland Lake Gold (KL) announced that at a special meeting of shareholders held earlier, the company’s shareholders voted in favor of the merger with Agnico Eagle Mines Limited (AEM).

Closed Deals:

  1. The acquisition of CAI International (CAI) by Mitsubishi HC Capital on November 22, 2021. It took 158 days for this deal to be completed.
  2. The acquisition of Acceleron Pharma (XLRN) by Merck (MRK) on November 22, 2021. It took 53 days for this deal to be completed.
  3. The acquisition of Echo Global Logistics (ECHO) by The Jordan Company on November 23, 2021. It took 74 days for this deal to be completed.
  4. The acquisition of Adamas Pharmaceuticals (ADMS) by Supernus Pharmaceuticals (SUPN) on November 24, 2021. It took 44 days for this deal to be completed.
  5. The acquisition of Inovalon Holdings (INOV) by Nordic Capital on November 24, 2021. It took 97 days for this deal to be completed.

Top 10 deals with largest spreads:

Symbol Announced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
Profit Annualized
Profit
MX 03/26/2021 South Dearborn Limited (N/A) $29.00 $18.3 12/31/2021 58.47% 666.92%
JOBS 06/21/2021 Garnet Faith Limited (N/A) $79.05 $54.19 12/31/2021 45.88% 523.27%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $20.73 02/28/2022 24.22% 97.13%
XLNX 10/27/2020 Advanced Micro Devices, Inc. (AMD) $266.80 $223.95 12/31/2021 19.13% 218.24%
AJRD 12/20/2020 Lockheed Martin Corporation (LMT) $51.00 $43.26 03/31/2022 17.89% 53.53%
SJR 03/15/2021 Rogers Communications Inc. (RCI) $32.40 $28.75 06/30/2022 12.70% 21.76%
AZPN 10/11/2021 Emerson Electric Co. (EMR) $160.00 $145.16 06/30/2022 10.22% 17.52%
NFH 08/04/2021 Unicorn II Holdings Limited (N/A) $12.00 $10.97 12/31/2021 9.39% 107.10%
STXB 11/19/2021 Simmons First National Corporation (SFNC) $30.28 $27.79 06/30/2022 8.95% 15.34%
SAFM 08/09/2021 Cargill and Continental Grain Company (N/A) $203.00 $186.69 01/31/2022 8.74% 50.62%

List of all pending deals:

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

Conclusion:

Arbitrageurs have been concerned about regulatory approvals in recent months and spreads on several deals reflected these concerns. These deals with large spreads also provided attractive opportunities to investors that were willing to go up the risk spectrum. One of these deals was the acquisition of Kadmon Holdings by Sanofi (SNY), which closed just 62 days after it was announced and had a wide spread of 8.82% (43% annualized) less than three weeks before the deal closed. While cross-border deals and deals in the semiconductor industry will continue to face a lot of regulatory scrutiny, it might be a good idea to look at the broader deal universe especially at a time when the market is offering few opportunities on the long side.

Disclaimer: I have long positions in Magnachip Semiconductor (MX), Nuance Communications (NUAN) and Change Healthcare (CHNG). 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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