Merger activity declined last week with four new deals announced and four deals completed. Two of the four new deals announced were successful deals in the works.
Founded in 1979 and headquartered in North Kansas City, Missouri, Cerner Corporation (CERN) is a healthcare information technology company. Cerner is one of the leading electronic health record (EHR) system providers in the world. The other behemoth in this space is a private company called Epic Systems based in rural Wisconsin whose software stores information about nearly 50% of U.S. patients. The New York Times did a great job covering this unusual company in a 2018 article called Willy Wonka and the Medical Software Factory. EHRs are complex systems that are tightly integrated with various third party systems including pharmacies and labs like the ones run by Quest Diagnostics (DGX) and Labcorp (LH). Installing or upgrading an EHR is a major undertaking and the Department of Veterans Affairs is expected to spend over $16 billion upgrading its EHR system during the next 10 years. I wrote briefly about another EHR vendor, NextGen Healthcare (NXGN) in an article titled NextGen At A Crossroads a couple of months ago and I have had first hand experience with a rather challenging EHR implementation.
It is not surprising that most tech behemoths are content to leave the complex world of EHR software and all the regulatory issues they encompass to the Epic Systems and Cerners of the world. I view this acquisition of Cerner by Oracle (ORCL) as a net negative for Oracle shareholders considering how challenging the integration of the company is likely to be, Cerner’s low net margins compared to most software companies and its anemic low-single digit revenue growth rate. The only silver lining is that despite the size of the deal ($28.4 billion including debt), it represents less than 10% Oracle’s enterprise value of $296 billion. Oracle already has $55 billion in net debt on its balance sheet and this deal will leave it even more indebted. In the words of Peter Lynch, this is a classic case of “diworsification” and it is not surprising that Oracle’s shares have been heading lower since the deal was announced.
We added CERN as a potential deal in the works on December 16, 2021, when The Wall Street Journal reported that Oracle (ORCL) was in talks to buy electronic-medical-records company Cerner (CERN). CERN’s price after this media report was $89.77. The deal materialized early last week as a $95 per share all cash deal.
You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) that automatically updates itself during market hours.
There were three new deals announced in the Deals in the Works section last week.
There were 5 SPAC IPOs filed and 7 new SPAC business combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.
Weekly Spread Changes:
The table below shows weekly spread changes between December 17 and December 24, 2021.
|LEVL||38.88||First Merchants Corporation (FRME)||41.19||2.09%||0.18%||1.91%||Cash Plus Stock|
|FVCB||19.95||Blue Ridge Bankshares, Inc. (BRBS)||17.83||2.71%||0.88%||1.83%||All Stock|
|SAFM||187.5||Cargill and Continental Grain Company (N/A)||8.27%||6.62%||1.65%||All Cash|
|ESBK||22.82||Community Bank System, Inc. (CBU)||74.17||1.23%||0.22%||1.01%||All Cash|
|ARNA||91.23||Pfizer Inc. (PFE)||58.71||9.61%||8.93%||0.68%||All Cash|
|SJR||29.71||Rogers Communications Inc. (RCI)||46.8||9.05%||11.57%||-2.52%||Special Conditions|
|CHNG||21.35||UnitedHealth Group Incorporated (UNH)||495.38||20.61%||23.26%||-2.65%||All Cash|
|MILE||2.38||Lemonade (LMND)||45.66||0.91%||4.03%||-3.12%||All Stock|
|MNTV||20.75||Zendesk (ZEN)||103.35||12.07%||15.23%||-3.16%||All Stock|
|NES||2.01||Select Energy Services, Inc. (WTTR)||6.23||-20.93%||0.00%||-20.93%||All Stock|
|Total Number of Deals Closed in 2021||194|
|Total Number of Deals Not Completed in 2021||16|
|Total Number of Pending Deals|
|Stock & Cash Deals||7|
|Total Number of Pending Deals||87|
|Total Deal Size||$1086.90875 billion|
Top 10 deals with largest spreads:
|JOBS||06/21/2021||Garnet Faith Limited (N/A)||$79.05||$47.6||12/31/2021||66.07%||4823.21%|
|TMX||12/14/2021||Rentokil Initial plc (RTOKY)||$55.00||$44.35||12/31/2022||24.01%||23.69%|
|CHNG||01/06/2021||UnitedHealth Group Incorporated (UNH)||$25.75||$21.35||06/30/2022||20.61%||40.44%|
|XLNX||10/27/2020||Advanced Micro Devices, Inc. (AMD)||$251.86||$216.11||12/31/2021||16.54%||1207.52%|
|PNM||10/21/2020||Avangrid, Inc. (AGR)||$50.30||$45.07||12/31/2021||11.60%||847.10%|
|AJRD||12/20/2020||Lockheed Martin Corporation (LMT)||$51.00||$45.88||03/31/2022||11.16%||42.88%|
|ARNA||12/13/2021||Pfizer Inc. (PFE)||$100.00||$91.23||06/30/2022||9.61%||18.86%|
|SJR||03/15/2021||Rogers Communications Inc. (RCI)||$32.40||$29.71||06/30/2022||9.05%||17.77%|
|SAFM||08/09/2021||Cargill and Continental Grain Company (N/A)||$203.00||$187.5||01/31/2022||8.27%||83.81%|
List of all pending deals:
List of all pending deals:
One of the biggest tech deals was announced last week as we come close to the end of the year. If it hadn’t been for Larry Ellison’s greater than 40% ownership of Oracle, the deal for Cerner could have run into shareholder resistance. The spread on the Cerner deal is 3.44% or 3.4% annualized if it closes by December 2022, indicating that the market thinks the deal will go through. Activity on the SPAC front slowed down last week with only 5 new SPAC IPOs filed. SPAC business combinations continued to grow with 7 new combinations announced last week.
Disclaimer: I have long positions in Nuance Communications (NUAN), Change Healthcare (CHNG) and Pfizer (PFE). 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.