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Merger Arbitrage Mondays – R. R. Donnelley To Be Acquired By Atlas Holdings

  • November 8, 2021

Merger activity increased last week with six new deals announced and five deals completed. Two of the six new deals announced last week were potential deals in the works.

A 150+ year old company that operates in 28 countries, R. R. Donnelley provides its business customers with marketing, printing, communication and data analytics services. We added R. R. Donnelley (RRD) as a potential deal in the works on October 12, 2021, when Chatham Asset Management, RRD’s largest bondholder offered to acquire the company for $7.50 per share in cash. RRD’s price after this announcement was $6.57.

On November 3, 2021, R. R. Donnelley entered into a definitive merger agreement to be acquired by affiliates of Atlas Holdings for approximately $2.1 billion or $8.52 per share in cash. On the same day, Chatham enhanced its offer to acquire all the common stock of RRD not already owned by Chatham for a range of $9.00 to 9.50 per share in cash. RRD’s price went up to $9.11 after this offer was announced. Under the terms of the merger agreement, RRD may solicit additional acquisition proposals from third parties during a “go shop” period of 25 calendar days from the signing of the merger agreement. Given this bidding war it is not surprising to see R. R. Donnelley trade at a negative spread of more than 7% to the $8.52 per share acquisition price.

For a company with $1.5 billion in net debt on the balance sheet and twelve continuous quarters of revenue decline before a 6.42% increase in revenue in Q3 2021, it is rather unusual that not just one suitor but two of them are competing to acquire R. R. Donnelley. The go shop period is very short and if the company’s management does not engage with Chatham, shareholders would end up with a sub-optimal outcome.

On August 31, 2021, Monmouth Real Estate Investment Corporation (MNR) terminated its merger with Equity Commonwealth (EQC) after failing to obtain the necessary shareholder votes required to complete the transaction and instead ended up tying the knot with a new suitor. On August 23, 2021, we wrote the following about the bidding war for MNR:

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