Merger Arbitrage Mondays – Pfizer Acquires Arena Pharmaceuticals At A 100% Premium

Merger activity increased significantly last week with eight new deals announced, four deals completed and two deals terminated. Three of the eight new deals announced last week were potential deals in the works. It was a busy week with respect to SPAC business combinations as well with 11 new SPAC business combinations announced.

The acquisition of Bottomline Technologies (EPAY) was Thoma Bravo’s 6th acquisition for the year. Proofpoint, QAD Inc., Talend, Stamps.com and Medallia were the other five companies in our list of active deals that entered into a definitive agreement to be acquired by Thoma Bravo this year.

Founded in 1989 and headquartered in Portsmouth, New Hampshire, Bottomline Technologies provides cloud-based business payments, and document automation solutions to financial institutions, corporations, and banks. These solutions provided by the company are used to streamline payment processes across global businesses, automate, and manage processes that involve payments, invoicing, global cash management, supply chain finance, and transactional documents.

 

We added Bottomline Technologies (EPAY) to our list of potential deals on on December 9, 2021, when Bloomberg reported that the company was exploring a sale. EPAY’s price after the news of the potential deal came out was $53.05. On December 17, 2021, Bottomline Technologies entered into a definitive agreement to be acquired by Thoma Bravo for $57 per share in cash.

Another significant deal announced last week was the acquisition of Arena Pharmaceuticals (ARNA) by Pfizer (PFE) for $4.69 billion or $100 per share in cash, representing a premium of over 100% to ARNA’s closing price on Friday, December 10, 2021. Through this acquisition Pfizer plans to gain access to its auto-immune therapy Etrasimod. Based in Park City, Utah, Arena Pharmaceuticals is a biopharmaceutical company that develops a diversified portfolio of therapeutic candidates targeting gastroenterology, dermatology, and cardiology. According to the press release, Arena has built a robust development program for etrasimod, including two Phase 3 studies in ulcerative colitis (UC), a Phase 2/3 program in Crohn’s Disease, a planned Phase 3 program in atopic dermatitis, and ongoing Phase 2 studies in eosinophilic esophagitis and alopecia areata.

Pfizer is using its newfound vaccine related cash to acquiring several companies and the announcement to acquire Arena comes less than a month after Pfizer closed its $2.2 billion deal to acquire Trillium Therapeutics. Just like the Trillium deal and Sanofi’s acquisition of Kadmon Holdings, the spread on the Arena deal is large at 8.93% (nearly 17% annualized if the deal closes by June 2022). The large spreads on all these deals reflects regulatory concerns.

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. On December 16, 2021, The Wall Street Journal reported that Oracle (ORCL) is in talks to buy electronic-medical-records company Cerner (CERN), a deal that could be worth around $30 billion and push the enterprise-software giant further into healthcare.

SPAC Arbitrage

There were 15 SPAC IPOs filed and 11 new SPAC business combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

  1. Harley-Davidson (HOG) and AEA-Bridges Impact Corp. (IMPX) have entered into a definitive business combination agreement under which ABIC will combine with LiveWire, Harley-Davidson’s electric motorcycle division, to create a new publicly traded company.
  2. Infinite Assets, Inc., a Metaverse infrastructure platform that enables brands to create, monetize and drive consumer engagement with digital content, and Aries I Acquisition Corporation (RAM)  have entered into a definitive agreement for a business combination.
  3. BioTE Holdings, LLC, a differentiated medical practice-building business within the hormone optimization space and Haymaker Acquisition Corp. III (HYAC) have entered into a definitive business combination agreement.
  4. Symbotic LLC, a revolutionary A.I.-enabled technology platform for the supply chain, and SVF Investment Corp. 3 (SVFC) announced a definitive merger agreement.
  5. Global Consumer Acquisition Corp. (GACQ) has entered into business combination agreements with GP Global Limited and Luminex Home Decor & Fragrance Holding Corporation, a private label solutions in the Air Care and Personal Care sectors.
  6. NuScale Power, LLC, a provider of proprietary and innovative advanced nuclear small modular reactor (SMR) technology, and Spring Valley Acquisition Corp. (SVentered into a definitive business combination agreement.
  7. Footprint International Holdco, Inc., a global materials science technology company focused on sustainable solutions and Gores Holdings VIII, Inc. (GIIX) have entered into a definitive merger agreement.
  8. Rubicon, a certified B-Corporation and innovative software platform that provides smart waste and recycling solutions for businesses and governments worldwide, and Founder SPAC (FOUN) announced a definitive agreement.
  9. Nauticus Robotics, Inc., a Houston-based developer of cloud-based surface and subsea robots, software, and associated services, and CleanTech Acquisition Corp. (CLAQ), have entered into a definitive business combination agreement.
  10. North Atlantic Acquisition Corporation (NAAC) has entered into a definitive business combination agreement with TeleSign, an industry pioneer with more than 15 years of operating history of connecting, protecting, and defending the world’s leading brands and their customers as they engage in the digital economy.
  11. Rezolve, a leader in mobile commerce and engagement, announced that it has entered into a definitive business combination agreement with Armada Acquisition Corp. I (AACI).

Weekly Spread Changes:

The table below shows weekly spread changes between December 10 and December 17, 2021.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
MNTV 19.98 Zendesk (ZEN) 102.32 15.23% 5.49% 9.74% All Stock
XLNX 200.14 Advanced Micro Devices, Inc. (AMD) 137.75 18.62% 9.94% 8.68% All Stock
JOBS 47.78 Garnet Faith Limited (N/A) 65.45% 58.45% 7.00% All Cash
MILE 2.34 Lemonade (LMND) 46.28 4.03% 1.92% 2.11% All Stock
COHR 262.52 II-VI Incorporated (IIVI) 68.16 7.43% 5.62% 1.81% Cash Plus Stock
PTRS 9.7 OceanFirst Financial Corp. (OCFC) 21.53 7.01% 9.03% -2.02% Special Conditions
LEVL 38.56 First Merchants Corporation (FRME) 39.71 0.18% 2.22% -2.04% Cash Plus Stock
STXB 27.63 Simmons First National Corporation (SFNC) 28.62 5.65% 7.89% -2.24% All Stock
CSPR 6.66 Durational Capital Management LP (N/A) 3.60% 6.98% -3.38% All Cash
AJRD 46.15 Lockheed Martin Corporation (LMT) 344.14 10.51% 19.75% -9.24% All Cash

Deal Statistics:

Total Number of Deals Closed in 2021 190
Total Number of Deals Not Completed in 2021 16
Total Number of Pending Deals
Cash Deals 48
Stock Deals 28
Stock & Cash Deals 6
Special Conditions 5
Total Number of Pending Deals 87
Total Deal Size $1.04 trillion

New Deals:

  1. The acquisition of SPX FLOW (FLOW) by Lone Star Funds for $3.8 billion or $86.50 per share in cash. We added FLOW as a potential deal to the Deals in the Works section on July 19, 2021, and the price after the news of the potential deal came out was $75.93.
  2. The acquisition of Arena Pharmaceuticals (ARNA) by Pfizer (PFE) for $4.69 billion or $100 per share in cash.
  3. The acquisition of Nuverra Environmental Solutions (NES) by Select Energy Services (WTTR) for $45 million in an all stock deal. Under the terms of the agreement, shareholders of Nuverra Environmental Solutions will receive 0.2551 shares of Select Energy Services stock for each share of Nuverra Environmental Solutions stock.
  4. The acquisition of Terminix Global Holdings (TMX) by Rentokil Initial (RTOKY) for $6.7 billion or $55 per share in a cash or stock deal.
  5. The acquisition of R. R. Donnelley & Sons Company (RRD) by Chatham Asset Management for $2.3 billion or $10.85 per share in cash.
  6. The acquisition of CMC Materials (CCMP) by Entegris (ENTG) for $6.5 billion in a cash plus stock deal. Under the terms of the agreement, CMC Materials shareholders will receive $133.00 in cash and 0.4506 shares of Entegris common stock for each share of CMC Materials common stock they own.
  7. The acquisition of Bottomline Technologies (EPAY) for $2.6 billion or $57 per share in cash. We added EPAY as a potential deal to the Deals in the Works section on December 9, 2021, and the price after the news of the potential deal came out was $53.05.
  8. The acquisition of Verso Corporation (VRS) by BillerudKorsnäs AB for $825 million or $27 per share in cash. We added VRS as a potential deal to the Deals in the Works section on July 12, 2021, and the price after the news of the potential deal came out was $19.04.

Deal Updates:

  1. On December 9, 2021, UnitedHealth Group Incorporated (UNH) delivered written notice to Change Healthcare (CHNG) that it was exercising its unilateral right to extend the Outside Date to April 5, 2022.
  2. On December 13, 2021, Triple-S Management Corporation (GTS) announced that the merger with GuideWell Mutual Holding Corporation was approved by Triple-S stockholders.
  3. On December 13, 2021, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), expired in connection with the previously announced proposed merger between Soliton (SOLY) and Allergan Aesthetics.
  4. On December 13, 2021, Lakeland Bancorp (LBAI) and 1st Constitution Bancorp (FCCY) announced that on December 10, 2021, the Federal Reserve Bank of New York issued a non-objection to Lakeland’s request to waive the application requirement in connection with the proposed merger of 1st Constitution with and into Lakeland. The companies have now received all regulatory approvals and non-objections in connection with the proposed merger. The merger is expected to close on January 6, 2022.
  5. December 13, 2021: According to Reuters, Britain’s antitrust regulator said that it will look into Microsoft’s (MSFT) purchase of Nuance Communications (NUAN). The Competition and Markets Authority (CMA), which has been stepping up its regulation of Big Tech, said it was considering if the deal would result in lesser competition in the UK market.
  6. On December 13, 2021, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), expired in connection with the previously announced proposed merger between Momentive Global (MNTV) and Zendesk (ZEN).
  7. On December 14, 2021, MKS Instruments (MKSI) and Atotech Limited (ATC) reported that the pending acquisition has received the approval, or indication of imminent approval, from 12 out of 13 global antitrust regulatory authorities, which approvals are conditions to the closing of the transaction. In China, the remaining jurisdiction, MKS and Atotech are continuing to work constructively with the State Administration for Market Regulation (“SAMR”), and now anticipate closing the acquisition in the first quarter of 2022.
  8. On December 16, 2021, Veoneer (VNE) announced that it has received shareholder approval to be acquired by Qualcomm Incorporated (QCOM).
  9. On December 16, 2021, Elmira Savings Bank (ESBK) announced that it has received shareholder approval to be acquired by Community Bank System (CBU).
  10. On December 16, 2021, GreenSky (GSKY) announced that it has received shareholder approval to be acquired by The Goldman Sachs Group (GS).
  11. On December 17, 2021, First Citizens BancShares (FCNCA) and CIT Group (CIT) jointly announced that their previous proposal to merge the two companies has received approval from the Board of Governors of the Federal Reserve System.
  12. On December 17, 2021, Santander Holdings USA announced that it has extended the expiration date of its previously announced tender offer to acquire all outstanding shares of common stock of Santander Consumer USA Holdings (SC). The Tender Offer is now scheduled to expire on December 23, 2021.

Closed Deals:

  1. The acquisition of Hill-Rom Holdings (HRC) by Baxter International (BAX) on December 13, 2021. It took 102 days for this deal to be completed.
  2. The acquisition of Kansas City Southern (KSU) by Canadian Pacific Railway Limited (CP) on December 14, 2021. It took 90 days for this new version of the deal to be completed.
  3. The acquisition of Itamar Medical (ITMR) by ZOLL Medical Corporation on December 15, 2021. It took 93 days for this deal to be completed.
  4. The acquisition of Soliton (SOLY) by Allergan Aesthetics on December 16, 2021. It took 220 days for this deal to be completed.

Terminated Deals:

  1. On December 13, 2021, Magnachip Semiconductor Corporation (MX) and South Dearborn Limited received permission from the Committee on Foreign Investment in the United States (“CFIUS”) to withdraw their joint CFIUS filing in relation to their proposed transaction and will be terminating their previously announced definitive merger agreement. In connection with the termination of the merger agreement, South Dearborn will pay the company a termination fee of $70.2 million.
  2. On December 14, 2021, R.R. Donnelley & Sons Company (RRD) terminated its merger agreement with Atlas Holdings and agreed to be acquired by Chatham Asset Management for $10.85 per share in cash.

Top 10 deals with largest spreads:

Symbol Announced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
Profit Annualized
Profit
JOBS 06/21/2021 Garnet Faith Limited (N/A) $79.05 $47.78 12/31/2021 65.45% 2171.61%
VRS 12/19/2021 BillerudKorsnäs AB (N/A) $27.00 $20.05 06/30/2022 34.66% 65.90%
TMX 12/14/2021 Rentokil Initial plc (RTOKY) $55.00 $44.01 12/31/2022 24.97% 24.24%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $20.89 06/30/2022 23.26% 44.23%
XLNX 10/27/2020 Advanced Micro Devices, Inc. (AMD) $237.40 $200.14 12/31/2021 18.62% 617.72%
MNTV 10/28/2021 Zendesk (ZEN) $23.02 $19.98 06/30/2022 15.23% 28.94%
PNM 10/21/2020 Avangrid, Inc. (AGR) $50.30 $45.07 12/31/2021 11.60% 385.05%
SJR 03/15/2021 Rogers Communications Inc. (RCI) $32.40 $29.04 06/30/2022 11.57% 22.00%
AJRD 12/20/2020 Lockheed Martin Corporation (LMT) $51.00 $46.15 03/31/2022 10.51% 37.98%
ARNA 12/13/2021 Pfizer Inc. (PFE) $100.00 $91.8 06/30/2022 8.93% 16.98%

List of all pending deals:

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

Conclusion:

Apart from multiple new deals announced last week, two active deals were terminated. While Magnachip Semiconductor Corporation (MX) and South Dearborn Limited mutually terminated their merger agreement, R.R. Donnelley & Sons Company (RRD) terminated its merger agreement with Atlas Holdings and agreed to be acquired by Chatham Asset Management, putting an end to the month long bidding war. Unlike other deals that fell apart and triggered forced selling by arbitrageurs, Magnachip saw its stock head higher on optimism related to its business prospects as an independent company.

Disclaimer: I have long positions in Magnachip Semiconductor (MX), 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.

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