Merger Arbitrage Mondays – Take-Two Acquires Zynga

Merger activity remained steady last week with two new deals announced and one active deal completed.

The largest game company acquisition in history was announced last week. In 2018, Bloomberg reported that, Zynga (ZNGA), the firm that created FarmVille and Words With Friends, had attracted takeover interest from other game developers amid a jump in dealmaking in the industry. ZNGA’s price after that report was $4.36.

Zynga has had a tumultuous decade with success in the early days of Facebook driving growth in FarmVille and then a subsequent slump that saw its founder and CEO Mark Pincus step down from the CEO role twice. It is interesting that the two San Francisco based mobile gaming companies I used to follow, Glu Mobile and Zynga, have both been acquired during the last year.

Zynga entered into a definitive merger agreement to be acquired by Take-Two (TTWO), owner of popular franchises like Grand Theft Auto, NBA 2K, and Red Dead Redemption. With this $12.7 billion acquisition, Take-Two plans to significantly accelerate and scale up its mobile gaming business. In recent months, gaming studios have been revealing plans to add NFTs to their games. The digital assets that are verified by blockchain technology, give proof of authenticity and ownership to gamers.

(Source: Company Q3 2021 Investor Presentation)

We have classified TTWO’s acquisition of ZNGA as a ‘special conditions’ deal based on the collar mechanism mentioned below in the deal terms. Zynga stockholders will receive $3.50 in cash and $6.36 in shares of Take-Two common stock for each share of Zynga common stock outstanding at the closing.

According to the merger agreement, Take-Two’s acquisition proposal for Zynga includes a “go-shop” period that will allow Zynga to shop around for a better transaction with a different company over a period of 45 days. Take-Two’s proposal represents a 64% premium on Zynga’s share price and Zynga would have to pay a termination fee of $50 million if it signs with a different company. We have seen several bidding wars in recent months and it will be interesting to see if someone like EA, who closed its acquisition of Glu Mobile last May, might attempt to step in with a competitive offer. If the deal goes through, we could potentially see gamers playing GTA on mobile.

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.

SPAC Arbitrage

SPAC activity increased with seven new SPAC IPOs filed. There was one new SPAC combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

  1. Suneva Medical, an innovative medical technology company using regenerative medicine to change the standard of care in aesthetic treatments and Viveon Health Acquisition Corp. (VHAQ) announced that they have entered into a definitive merger agreement.

Weekly Spread Changes:

The table below shows weekly spread changes between January 7 and January 15, 2022.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
CSPR 5.4 Durational Capital Management LP (N/A) 27.78% 3.29% 24.49% All Cash
MNTV 17.77 Zendesk (ZEN) 100.41 27.14% 10.82% 16.32% All Stock
AJRD 42.98 Lockheed Martin Corporation (LMT) 363.25 18.66% 14.79% 3.87% All Cash
CHNG 20.58 UnitedHealth Group Incorporated (UNH) 468.69 25.12% 22.04% 3.08% All Cash
TMX 42.73 Rentokil Initial plc (RTOKY) 35.99 28.72% 26.23% 2.49% Special Conditions
PTRS 10.53 OceanFirst Financial Corp. (OCFC) 24.04 -1.42% 0.00% -1.42% Special Conditions
MIME 80.36 Permira (N/A) -0.45% 1.14% -1.59% All Cash
FVCB 20.435 Blue Ridge Bankshares, Inc. (BRBS) 18.25 2.63% 4.29% -1.66% All Stock
AZPN 155.92 Emerson Electric Co. (EMR) 97.47 2.62% 8.52% -5.90% Special Conditions
JOBS 49.58 Garnet Faith Limited (N/A) 59.44% 74.16% -14.72% All Cash

Deal Statistics:

Total Number of Deals Closed in 2022 7
Total Number of Pending Deals
Cash Deals 44
Stock Deals 24
Stock & Cash Deals 7
Special Conditions 7
Total Number of Pending Deals 82
Total Deal Size $475.18 billion

New Deals:

  1. The acquisition of Apria (APR) by Owens & Minor (OMI) for $1.62 billion or $37.50 per share in cash.
  2. The acquisition of Zynga (ZNGA) by Take-Two Interactive Software (TTWO) for $12.7 billion in a cash plus stock deal. Under the terms of the agreement, Zynga stockholders will receive $3.50 in cash and $6.361 in shares of Take-Two common stock for each share of Zynga common stock outstanding at the closing. The transaction is valued at $9.861 per share of Zynga common stock. The transaction includes a collar mechanism on the equity consideration, so that if Take-Two’s 20-day volume weighted average price (“VWAP”) ending on the third trading day prior to closing is in a range from $156.50 to $181.88, the exchange ratio would be adjusted to deliver total consideration value of $9.86 per Zynga share (including $6.36 of equity value based on that VWAP and $3.50 in cash). If the VWAP exceeds the higher end of that range, the exchange ratio would be 0.0350 per share, and if the VWAP falls below the lower end of that range, the exchange ratio would be 0.0406 per share.

Deal Updates:

  1. On January 12, 2022, Microsoft’s (MSFT) planned acquisition of Nuance Communications (NUANis being formally investigated by the U.K. Competition and Markets Authority to determine whether it will hamper competition in the U.K. The deadline for the CMA to announce its decision whether to refer the Merger for a Phase 2 investigation is therefore March 9, 2022.
  2. On January 12, 2022, 51job (JOBS) announced that its Board of Directors received a proposal letter from Garnet Faith Limited in connection with the proposed merger. In the Proposal Letter, the Merger Sub proposed to reduce the merger consideration from US$79.05 in cash per common share to US$57.25 in cash per common share.
  3. On January 12, 2022, Marlin Business Services (MRLN) announced an update on its proposed merger with HPS Investment Partners. Marlin has now satisfied the De-Banking Condition and the parties intend to consummate the merger prior to the market open on Thursday, January 20, 2022.
  4. On January 13, 2022, Proofpoint offered to buy Mimecast (MIME) for $92.50 per share. Mimecast rejected the offer as it believed a transaction may have too many potential antitrust issues.
  5. On January 13, 2022, 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 January 20, 2022.

Closed Deals:

  1. The acquisition of Teekay LNG Partners (TGP) by Stonepeak on January 13, 2022. It took 100 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 $49.58 03/31/2022 59.44% 293.18%
TMX 12/14/2021 Rentokil Initial plc (RTOKY) $55.00 $42.73 12/31/2022 28.72% 30.03%
CSPR 11/15/2021 Durational Capital Management LP (N/A) $6.90 $5.4 03/31/2022 27.78% 137.01%
MNTV 10/28/2021 Zendesk (ZEN) $22.59 $17.77 06/30/2022 27.14% 60.03%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $20.58 06/30/2022 25.12% 55.57%
XLNX 10/27/2020 Advanced Micro Devices, Inc. (AMD) $235.90 $198.45 03/31/2022 18.87% 93.08%
AJRD 12/20/2020 Lockheed Martin Corporation (LMT) $51.00 $42.98 03/31/2022 18.66% 92.04%
BRG 12/20/2021 Blackstone Real Estate (N/A) $29.85 $26.53 06/30/2022 12.51% 27.68%
ZNGA 01/10/2022 Take-Two Interactive Software, Inc. (TTWO) $9.86 $8.96 06/30/2022 10.04% 22.22%
COHR 03/25/2021 II-VI Incorporated (IIVI) $284.66 $259.65 01/31/2022 9.63% 234.34%

List of all pending deals:

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

Target Announced
Date
Acquirer Deal
Type
Closing
Value
Deal
Price
Last
Price
Target Volume Estimated
Closing Date
Return Annualized
Return
+ JOBS 6/21/21 Garnet Faith Limited (N/A) All Cash $3.63 B $79.05 $49.58 451,176 3/31/22 59.44% 297.20%
+ TMX 12/14/21 Rentokil Initial plc (RTOKY) Special Conditions $6.7 B $55.00 $42.73 992,257 12/31/22 28.72% 30.12%
+ CSPR 11/15/21 Durational Capital Management LP (N/A) All Cash $318.49 M $6.90 $5.4 5,584,448 3/31/22 27.78% 138.89%
+ MNTV 10/28/21 Zendesk (ZEN) All Stock $4.21 B $22.59 $17.77 889,993 6/30/22 27.14% 60.40%
+ CHNG 1/06/21 UnitedHealth Group Incorporated (UNH) All Cash $13.28 B $25.75 $20.58 3,163,524 6/30/22 25.12% 55.91%
+ XLNX 10/27/20 Advanced Micro Devices, Inc. (AMD) All Stock $33.43 B $235.90 $198.45 1,572,393 3/31/22 18.87% 94.35%
+ AJRD 12/20/20 Lockheed Martin Corporation (LMT) All Cash $3.79 B $51.00 $42.98 1,184,930 3/31/22 18.66% 93.30%
+ BRG 12/20/21 Blackstone Real Estate (N/A) Special Conditions $3.6 B $29.85 $26.53 277,494 6/30/22 12.51% 27.85%
+ ZNGA 1/10/22 Take-Two Interactive Software, Inc. (TTWO) Special Conditions $12.7 B $9.86 $8.96 48,577,142 6/30/22 10.04% 22.36%
+ COHR 3/25/21 II-VI Incorporated (IIVI) Cash Plus Stock $6.84 B $284.66 $259.65 281,092 1/31/22 9.63% 251.08%
+ PNM 10/21/20 Avangrid, Inc. (AGR) All Cash $8.05 B $50.30 $46.13 1,033,382 6/30/22 9.04% 20.12%
+ ARNA 12/13/21 Pfizer Inc. (PFE) All Cash $4.69 B $100.00 $92.65 1,368,938 6/30/22 7.93% 17.66%
+ NFH 8/04/21 Unicorn II Holdings Limited (N/A) All Cash $2.09 billion $12.00 $11.12 274,536 1/31/22 7.91% 206.32%
+ SJR 3/15/21 Rogers Communications Inc. (RCI) Special Conditions $26 B $32.40 $30.17 186,515 6/30/22 7.39% 16.45%
+ SAFM 8/09/21 Cargill and Continental Grain Company (N/A) All Cash $4.49 B $203.00 $189.39 86,774 1/31/22 7.19% 187.36%
+ NPTN 11/04/21 Lumentum Holdings Inc. (LITE) All Cash $745.24 M $16.00 $15.11 775,439 12/31/22 5.89% 6.18%
+ STXB 11/19/21 Simmons First National Corporation (SFNC) All Stock $581 M $32.55 $30.97 44,791 6/30/22 5.10% 11.34%
+ VNE 10/04/21 Qualcomm Incorporated (QCOM) All Cash $3.87 B $37.00 $35.47 1,353,997 6/30/22 4.31% 9.60%
+ ISBC 7/28/21 Citizens Financial Group, Inc. (CFG) Cash Plus Stock $3.5 B $18.20 $17.45 2,789,381 6/30/22 4.27% 9.51%
+ UMPQ 10/12/21 Columbia Banking System, Inc. (COLB) All Stock $4.5 B $22.01 $21.16 1,636,436 6/30/22 4.04% 8.99%
+ XENT 8/06/21 Medtronic plc (MDT) All Cash $1.1 billion $28.25 $27.23 124,426 3/31/22 3.75% 18.73%
+ CERN 12/20/21 Oracle Corporation (ORCL) All Cash $28.4 B $95.00 $92.21 4,672,663 12/31/22 3.03% 3.17%
+ CCMP 12/15/21 Entegris, Inc. (ENTG) Cash Plus Stock $6.5 B $193.21 $187.65 348,995 12/31/22 2.96% 3.11%
+ FVCB 7/14/21 Blue Ridge Bankshares, Inc. (BRBS) All Stock $113.36 M $20.97 $20.435 77,951 1/31/22 2.63% 68.63%
+ AZPN 10/11/21 Emerson Electric Co. (EMR) Special Conditions $12.34 B $160.00 $155.92 543,543 6/30/22 2.62% 5.82%
+ KOR 9/13/21 AngloGold Ashanti Limited (AU) All Cash $450 M $3.29 $3.21 117,739 3/31/22 2.49% 12.46%
+ TSC 10/20/21 Raymond James Financial, Inc. (RJF) Cash Plus Stock $1.1 B $33.11 $32.32 150,040 6/30/22 2.44% 5.44%
+ LEVL 11/04/21 First Merchants Corporation (FRME) Cash Plus Stock $323.5 M $42.98 $42 41,988 6/30/22 2.33% 5.20%
+ FBC 4/26/21 New York Community Bancorp, Inc. (NYCB) All Stock $2.6 B $53.24 $52.05 332,504 3/31/22 2.29% 11.43%
+ PBCT 2/22/21 M&T Bank Corporation (MTB) All Stock $7.6 B $21.87 $21.42 4,257,285 3/31/22 2.10% 10.51%
+ FOE 5/11/21 Prince International Corporation (N/A) All Cash $2.1 B $22.00 $21.66 235,389 3/31/22 1.57% 7.85%
+ GSS 11/01/21 Chifeng Jilong Gold Mining Co., Ltd. (N/A) All Cash $470 M $3.91 $3.85 216,108 1/31/22 1.56% 40.63%
+ ROG 11/02/21 DuPont de Nemours, Inc. (DD) All Cash $5.2 B $277.00 $273.36 178,045 6/30/22 1.33% 2.96%
+ ESBK 10/04/21 Community Bank System, Inc. (CBU) All Cash $82.8 M $23.10 $22.8 210 3/31/22 1.32% 6.58%
+ CONE 11/15/21 KKR and Global Infrastructure Partners (N/A) All Cash $15 B $90.50 $89.34 3,432,030 6/30/22 1.30% 2.89%
+ MILE 11/08/21 Lemonade (LMND) All Stock $201.47 M $1.85 $1.83 4,442,371 6/30/22 1.23% 2.75%
+ NUAN 4/12/21 Microsoft Corp (MSFT) All Cash $19.7 B $56.00 $55.36 3,243,588 3/31/22 1.16% 5.78%
+ EPAY 12/17/21 Thoma Bravo (N/A) All Cash $2.6 B $57.00 $56.36 2,197,581 6/30/22 1.14% 2.53%
+ ATC 7/01/21 MKS Instruments, Inc. (MKSI) Cash Plus Stock $6.5 B $26.17 $25.9 454,324 3/31/22 1.06% 5.29%
+ OCDX 12/23/21 Quidel Corporation (QDEL) Cash Plus Stock $8.33 B $19.26 $19.06 1,094,400 6/30/22 1.05% 2.33%
+ GTS 8/24/21 GuideWell Mutual Holding Corporation (N/A) All Cash $665.93 M $36.00 $35.64 50,737 6/30/22 1.01% 2.25%
+ FLOW 12/13/21 Lone Star Funds (N/A) All Cash $3.8 B $86.50 $85.67 385,392 6/30/22 0.97% 2.16%
+ KL 9/28/21 Agnico Eagle Mines Limited (AEM) All Stock $9.53 B $40.79 $40.41 1,663,300 3/31/22 0.95% 4.75%
+ MGP 8/04/21 VICI Properties Inc. (VICI) All Stock $17.2 billion $38.99 $38.62 1,139,084 6/30/22 0.95% 2.11%
+ MCFE 11/08/21 Investor Group comprised of Advent, Permira, Crosspoint Capital, CPP Investments, GIC and ADIA (N/A) All Cash $14 B $26.00 $25.76 2,412,313 6/30/22 0.93% 2.07%
+ VG 11/22/21 Ericsson (ERIC) All Cash $6.2 B $21.00 $20.82 2,380,646 6/30/22 0.86% 1.92%
+ WBT 7/14/21 Ali Holding S.r.l. (N/A) All Cash $4.8 B $24.00 $23.8 894,486 1/31/22 0.84% 21.91%
+ GSKY 9/15/21 The Goldman Sachs Group (GS) All Stock $2.24 B $11.43 $11.34 680,341 3/31/22 0.78% 3.89%
+ INFO 11/30/20 S&P Global (SPGI) All Stock $44 B $122.70 $121.77 2,615,624 6/30/22 0.77% 1.71%
+ VRS 12/19/21 BillerudKorsnäs AB (N/A) All Cash $825 M $27.00 $26.8 282,357 6/30/22 0.75% 1.66%
+ OMP 10/26/21 Crestwood Equity Partners LP (CEQP) All Stock $1.8 B $25.61 $25.43 84,782 1/31/22 0.72% 18.74%
+ GWB 9/16/21 First Interstate BancSystem, Inc. (FIBK) All Stock $2 B $37.31 $37.05 236,223 3/31/22 0.69% 3.45%
+ ANAT 8/09/21 Brookfield Asset Management Reinsurance Partners Ltd. (BAMR) All Cash $5.1 B $190.00 $188.73 32,156 6/30/22 0.67% 1.50%
+ FTSI 10/22/21 ProFrac Holdings (N/A) All Cash $407.5 M $26.52 $26.35 56,913 3/31/22 0.65% 3.23%
+ FMBI 6/01/21 Old National Bancorp (ONB) All Stock $2.86 B $22.69 $22.55 685,198 1/31/22 0.64% 16.73%
+ PAE 10/25/21 Amentum Government Services Holdings LLC (N/A) All Cash $1.9 B $10.05 $9.99 923,177 3/31/22 0.60% 3.00%
+ FRTA 2/22/21 Quikrete Holdings, Inc. (N/A) All Cash $2.74 B $24.00 $23.87 217,578 3/31/22 0.54% 2.72%
+ APR 1/10/22 Owens & Minor, Inc. (OMI) All Cash $1.62 B $37.50 $37.3 965,880 6/30/22 0.54% 1.19%
+ CSLT 1/05/22 Vera Whole Health (N/A) All Cash $261.35 M $2.05 $2.04 2,360,121 3/31/22 0.49% 2.45%
+ MNR 11/05/21 Industrial Logistics Properties Trust (ILPT) All Cash $3.72 B $21.00 $20.91 539,136 6/30/22 0.43% 0.96%
+ DWSN 10/25/21 Wilks Brothers, LLC (N/A) All Cash $18.56 M $2.34 $2.33 22,917 3/31/22 0.43% 2.15%
+ KRA 9/27/21 DL Chemical Co., Ltd. (N/A) All Cash $2.5 B $46.50 $46.32 180,723 6/30/22 0.39% 0.86%
+ STFC 7/12/21 Liberty Mutual Holding Company Inc. (N/A) All Cash $2.48 B $52.00 $51.8 65,178 3/31/22 0.39% 1.93%
+ IHC 11/09/21 Geneve Holdings, Inc. (N/A) All Cash $813.9 M $57.00 $56.79 21,955 3/31/22 0.37% 1.85%
+ VCRA 1/06/22 Stryker (SYK) All Cash $3.09 B $79.25 $78.96 3,740,361 3/31/22 0.37% 1.84%
+ ACBI 7/23/21 SouthState Corporation (SSB) All Stock $542 M $33.53 $33.41 73,627 3/31/22 0.36% 1.80%
+ GCP 12/06/21 Saint-Gobain (N/A) All Cash $2.3 B $32.00 $31.9 384,200 12/31/22 0.31% 0.33%
+ GNOG 8/09/21 DraftKings Inc. (DKNG) All Stock $1.52 B $8.46 $8.44 702,848 3/31/22 0.29% 1.44%
+ HBMD 7/13/21 F.N.B. Corporation (FNB) All Stock $418 M $25.18 $25.12 104,189 1/31/22 0.25% 6.43%
+ TACO 12/06/21 Jack in the Box Inc. (JACK) All Cash $575 M $12.51 $12.48 925,307 3/31/22 0.24% 1.20%
+ STL 4/19/21 Webster Financial Corporation (WBS) All Stock $5.12 B $29.71 $29.64 1,157,536 2/01/22 0.24% 5.81%
+ MRLN 4/19/21 HPS Investment Partners LLC (N/A) All Cash $109.4 M $23.50 $23.5 418,038 1/20/22 0.00% 0.00%
+ BPMP 12/20/21 BP p.l.c. (BP) All Stock $2.45 B $18.42 $18.43 420,313 3/31/22 -0.04% -0.19%
+ ABTX 11/10/21 CBTX, Inc. (CBTX) All Stock $1.5 B $44.98 $45 53,521 6/30/22 -0.05% -0.11%
+ CPLG 11/08/21 Highgate and Cerberus Capital Management, L.P. (N/A) Special Conditions $1.5 B $15.65 $15.68 1,119,923 3/31/22 -0.19% -0.96%
+ PSXP 10/27/21 Phillips 66 (PSX) All Stock $14.5 B $44.29 $44.38 397,934 3/31/22 -0.20% -1.01%
+ PVG 11/09/21 Newcrest Mining Limited (NCMGY) All Stock $2.8 B $14.36 $14.39 1,657,036 3/31/22 -0.21% -1.03%
+ SC 8/24/21 Santander Holdings USA, Inc. (N/A) All Cash $12.7 B $41.50 $41.66 166,871 3/31/22 -0.38% -1.92%
+ MIME 12/07/21 Permira (N/A) All Cash $5.8 B $80.00 $80.36 2,874,479 6/30/22 -0.45% -1.00%
+ PTRS 11/04/21 OceanFirst Financial Corp. (OCFC) Special Conditions $186 M $10.38 $10.53 3,428 6/30/22 -1.42% -3.17%
+ RRD 12/14/21 Chatham Asset Management, LLC (N/A) All Cash $2.3 B $10.85 $11.23 1,307,258 6/30/22 -3.38% -7.53%
+ NES 12/13/21 Select Energy Services, Inc. (WTTR) All Stock $45 M $1.73 $2.2700 395,395 3/31/22 -23.58% -117.91%

Conclusion:

SPAC activity increased a little last week but the business combinations were still low. We wrote the following about SPACs in our mid-month update:

We track SPAC IPOs and business combinations on Inside Arbitrage here and here. A couple of weeks ago, I decided to download the list of all completed business combinations to see how they had performed after they had merged with an operating company. I suspected that given the bubble in various asset classes and a dwindling supply of high quality private business to acquire, the post-merger performance was probably not good.

I was completely surprised by the results. Performance was significantly worse than I expected. The group of 159 post-merger SPACs I looked at collectively lost more than 36% and only 12 out of the 159 had positive returns. I was aware that my (Twitter) friend Ross Greenspan had written a paper on the history of SPACs and I reached to him to see if I could get a copy. His paper titled Money for Nothing, Shares for Free: A Brief History of the SPAC is a fascinating read. I was not aware that both Burger King and American Apparel had gone public through SPACs. More importantly, I noticed on page 24 that the results I was seeing from analyzing Inside Arbitrage SPAC data were confirmed by another longer study that found “the average four-year buy-and-hold return for second-generation SPACs was a grim negative 51.9%”.

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