Merger Arbitrage Mondays – A Second Attempt For DouYu?

Merger activity remained steady last week with two new deals announced and four deals completed. With two deals announced each week, there have been a total of eight new deals announced so far in the month of January.

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.

We added Centene Corporation (CNC) as a potential deal in the works on January 26, 2022, after Bloomberg reported that Centene had been drawing takeover interest from Cigna Corporation (CI) in recent months. In the past couple of years, we tracked the acquisitions of WellCare Health Plans and Magellan Health by Centene. Before completing the acquisition of WellCare Health Plans in 2019, Dan Loeb’s Third Point and activists Corvex and Sachem Head were encouraging Centene to sell itself. The deal could face hurdles in the current challenging regulatory and competitive environment. Wells Fargo analyst Stephen Baxter said in a note , “While this could certainly be revisited, at this point we see more potential obstacles than obvious reasons to push forward. These include relatively modest accretion, CI’s historical ambivalence toward Medicaid, the disconnect between CNC’s current profitability and long-term earnings power, and antitrust concerns.”

Another potential deal in the works that we added last week was DouYu (DOYU). We tracked the acquisition of DOYU by Huya (HUYA) from the announcement in October 2020 until China’s market regulator blocked Tencent Holdings’s plan to merge the country’s top two videogame streaming sites, on antitrust grounds in mid-2021. After the announcement of two of the biggest gaming industry deals in history in January including the acquisition of Zynga by Take-Two and Activision by Microsoft, Tencent Holdings, owner of games like ‘Honor of Kings’ and ‘PUBG’, announced that it plans to take DouYu private in order to have a firm grip on its core gaming affiliates. Tencent already holds a 37% stake in DouYu and might have better luck taking the company private than it did with attempting to merge it with Huya. DouYu’s stock is down an astounding 84% during the last year.

LXP Industrial Trust (LXP) was another addition to our list of potential deals last week. The company, a real estate investment trust focused on single-tenant warehouse and distribution  investments, received a letter from Jonathan Litt’s Land & Buildings Investment Management offering to acquire the company for $$16 per share, at a premium of 22%.

SPAC Arbitrage

SPAC activity declined with two new SPAC IPOs filed. There were five new SPAC combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

1. DNEG, a technology-enabled visual effects and animation company for the creation of feature film, television and multiplatform content, and Sports Ventures Acquisition (AKIC) entered into a definitive business combination agreement that will result in DNEG becoming a public company.
2. Akili Interactive, a digital medicine company developing cognitive treatments  entered into a definitive agreement to become publicly traded via a merger with Social Capital Suvretta Holdings Corp. I (DNAA).
3. Apifiny Group, a global cross-exchange digital asset trading network based in New York, announced that it has entered into a definitive business combination agreement with Abri SPAC I (ASPA).
4. D-Orbit S.p.A., an Italy-based space logistics and transportation company, announced that it will become publicly listed through a business combination with Breeze Holdings Acquisition (BREZ).
5. ETAO International Group, a digital healthcare group providing telemedicine, hospital care, primary care, pharmacy and health insurance covering all life stages of patients has entered into a definitive merger agreement with Mountain Crest Acquisition Corp. III (MCAE).

Weekly Spread Changes:

The table below shows weekly spread changes between January 21 and January 28, 2022.

Symbol	Quote	Acquiring Company	Acquiring Company Quote	Current Spread	Last Week Spread	Spread Change Weekly	Deal Type
AJRD	38.44	Lockheed Martin Corporation (LMT)	393.15	32.67%	18.80%	13.87%	All Cash
JOBS	49.2	Garnet Faith Limited (N/A)		60.67%	52.61%	8.06%	All Cash
NES	1.61	Select Energy Services, Inc. (WTTR)	6.45	2.20%	-4.60%	6.80%	All Stock
ZNGA	8.67	Take-Two Interactive Software, Inc. (TTWO)	158.74	13.73%	9.68%	4.05%	Special Conditions
ATVI	79.14	Microsoft Corporation (MSFT)	308.26	20.04%	16.78%	3.26%	All Cash
MNR	21.06	Industrial Logistics Properties Trust (ILPT)	22.71	-0.28%	0.72%	-1.00%	All Cash
ABTX	42.85	CBTX, Inc. (CBTX)	29.31	-2.98%	-1.59%	-1.39%	All Stock
MNTV	16.96	Zendesk (ZEN)	94.51	25.38%	28.80%	-3.42%	All Stock
XLNX	177.95	Advanced Micro Devices, Inc. (AMD)	105.24	1.92%	9.04%	-7.12%	All Stock
PVG	13.41	Newcrest Mining Limited (NCMGY)	14.97	-9.76%	-0.02%	-9.74%	All Stock

Deal Statistics:

Total Number of Deals Closed in 2022	14
Total Number of Deals Not Completed in 2022	1
Total Number of Pending Deals
Cash Deals	40
Stock Deals	23
Stock & Cash Deals	7
Special Conditions	8
Total Number of Pending Deals	78
Total Deal Size	$546.59 billion

New Deals:

1. The acquisition of Exterran Corporation (EXTN) by Enerflex (EFX.TO) for $735 million in an all stock deal. Under the terms of the agreement, the companies will combine in an all-share transaction pursuant to which Enerflex will acquire all of the outstanding common stock of Exterran on the basis of 1.021 Enerflex common shares for each outstanding share of common stock of Exterran.
2. The acquisition of The National Security Group (NSEC) by VR Insurance Holdings for $41.4 million or $16.35 per share in cash. The price per share is subject to downward adjustment if the combined statutory capital and surplus of NSG’s insurance subsidiaries is less than $43 million; VR Holdings can terminate the agreement if combined statutory capital and surplus falls below $38.7 million. The insurance subsidiaries are expected to exceed the $43 million threshold in their statutory financial statements as of December 31, 2021.

Deal Updates:

1. On January 24, 2022, further to the joint announcement by Ortho Clinical Diagnostics Holdings (OCDX) and Quidel Corporation (QDEL), Ortho  announced that, as a preliminary procedural step in the process of implementing the combination, Ortho has scheduled a hearing of the High Court of Justice of England and Wales to seek the UK Court’s consent and directions to convene a meeting of Ortho shareholders as part of the scheme of arrangement of Ortho proposed to be made pursuant to Part 26 of the Companies Act 2006 for the purpose of implementing the business combination.
2. On January 25, 2022, Rogers Corporation (ROG) announced that, its shareholders voted to approve the previously announced acquisition of Rogers by DuPont de Nemours (DD).
3. On January 25, 2022, Aerojet Rocketdyne (AJRD) announced that it has been advised by the FTC that its concerns regarding the transaction cannot be addressed adequately by the terms of the proposed consent order. The company believes it is highly likely that the FTC will vote to sue to block the transaction and expect they will make a decision before January 27, 2022. If the FTC sues to block the transaction, Lockheed Martin (LMT) could elect to defend the lawsuit or terminate the merger agreement.
4. On January 25, 2022, the Federal Trade Commission sued to block Lockheed Martin Corporation’s (LMT) proposed vertical acquisition of Aerojet Rocketdyne Holdings (AJRD), the last independent U.S. supplier of missile propulsion systems. The agency’s complaint alleges that if the deal is allowed to proceed, Lockheed will use its control of Aerojet to harm rival defense contractors and further consolidate multiple markets critical to national security and defense. This is the agency’s first litigated defense merger challenge in decades.
5. On January 25, 2022, the European Commission approved, under the EU Merger Regulation, the proposed acquisition of Ferro (FOE) by Prince.
6. On January 25, 2022, Golden Star Resources (GSS) announced that it has received the second of the three required regulatory approvals from the People’s Republic of China, namely the approval from the Ministry of Commerce (“MOFCOM”), with respect to to the previously announced plan of arrangement.
7. On January 26, 2022, Columbia Banking System (COLB) and Umpqua Holdings Corporation (UMPQ) jointly announced that they have received all required shareholder approvals related to the proposed combination between Columbia and Umpqua.
8. On January 26, 2022, Xilinx (XLNX) and Advanced Micro Devices (AMD) received clearance from the National Anti-Monopoly Policy Bureau of the State Administration for Market Regulation of the People’s Republic of China with respect to the merger.
9. On January 26, 2022, Pretium Resources (PVG) announced that it has obtained a final order from the Supreme Court of British Columbia approving the previously announced acquisition of the company by Newcrest Mining Limited (NCMGY).
10. On January 27, 2022, Old National Bancorp (ONB) and First Midwest Bancorp (FMBI) announced that their merger of equals transaction, has received Federal Reserve approval.
11. On January 27, 2022, S&P Global (SPGI) announced that its wholly owned subsidiary S&P Global Market Intelligence has extended the expiration date of the previously announced offer to exchange any and all outstanding notes issued by IHS Markit (INFO) from February 1, 2022, to February 22, 2022.
12. On January 28, 2022, Santander Holdings USA announced that the Board of Governors of the Federal Reserve System has approved the acquisition of all outstanding shares of common stock of Santander Consumer USA Holdings (SC) not already owned by SHUSA.

Closed Deals:

1. The acquisition of Howard Bancorp (HBMD) by F.N.B. Corporation (FNB) on January 24, 2022. It took 195 days for this deal to be completed.
2. The acquisition of Casper Sleep (CSPR) by Durational Capital Management on January 25, 2022. It took 71 days for this deal to be completed.
3. The acquisition of New Frontier Health Corporation (NFH) by Unicorn II Holdings Limited on January 26, 2022. It took 175 days for this deal to be completed.
4. The acquisition of Golden Star Resources (GSS) by Chifeng Jilong Gold Mining on January 28, 2022. It took 88 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
JOBS	06/21/2021	Garnet Faith Limited (N/A)	$79.05	$49.2	03/31/2022	60.67%	369.08%
AJRD	12/20/2020	Lockheed Martin Corporation (LMT)	$51.00	$38.44	03/31/2022	32.67%	198.77%
CHNG	01/06/2021	UnitedHealth Group Incorporated (UNH)	$25.75	$19.55	06/30/2022	31.71%	76.66%
TMX	12/14/2021	Rentokil Initial plc (RTOKY)	$55.00	$42.47	12/31/2022	29.50%	32.15%
MNTV	10/28/2021	Zendesk (ZEN)	$21.26	$16.96	06/30/2022	25.38%	61.35%
ATVI	01/18/2022	Microsoft Corporation (MSFT)	$95.00	$79.14	03/31/2023	20.04%	17.21%
ZNGA	01/10/2022	Take-Two Interactive Software, Inc. (TTWO)	$9.86	$8.67	06/30/2022	13.73%	33.18%
PNM	10/21/2020	Avangrid, Inc. (AGR)	$50.30	$44.49	06/30/2022	13.06%	31.57%
BRG	12/20/2021	Blackstone Real Estate (N/A)	$29.85	$26.5	06/30/2022	12.64%	30.56%
AZPN	10/11/2021	Emerson Electric Co. (EMR)	$160.00	$142.35	06/30/2022	12.40%	29.97%

List of all pending deals:

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

Conclusion:

Antitrust issues continue to be roadblocks to deals being completed. Earlier last week, the U.S. Federal Trade Commission (FTC) sued to block Lockheed Martin’s (LMT) planned purchase of Aerojet Rocketdyne (AJRD) and Department of Justice antitrust chief Jonathan Kanter said the following in a virtual speech, “I am concerned that merger remedies short of blocking a transaction too often miss the mark. Complex settlements, whether behavioral or structural, suffer from significant deficiencies. Therefore, in my view, when the division concludes that a merger is likely to lessen competition, in most situations we should seek a simple injunction to block the transaction. It is the surest way to preserve competition.”

In this challenging regulatory environment, I exercised the put options I had purchased in Change Healthcare (CHNG) to exit the position.

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Disclaimer: I have long positions in Arena Pharmaceuticals (ARNA) and Bluerock Residential Growth REIT (BRG). 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.