Merger Arbitrage Mondays – The Bidding War For R. R. Donnelley Continues

  • January 3, 2022

Merger activity was muted during the last week of the year 2021 with no new deals announced and two active deals consummated, one of which was completed just 39 days after the signing of the definitive merger agreement. This month we included a U.S. M&A special year end report in our January 2022 Special Situations newsletter in addition to highlighting two merger arbitrage opportunities as our spotlight ideas for the month. A snapshot of the special report is given below.

2021 U.S. M&A Special Report
2021 U.S. M&A Special Report (source: Inside Arbitrage database)

During 2021, we saw 16 deals terminated, which was marginally better than the 17 deals that were terminated in 2020 but the news was not all bad. Only 4 deals were terminated on account of regulatory issues. Seven deals were terminated because they received new offers and in many cases Christmas came early because the deals went through bidding wars that lasted multiple rounds. Before Coherent (COHR) terminated its merger agreement with Lumentum (LITE) and finally tied the knot with II-VI Incorporated (IIVI), the deal went through nine rounds of counter offers involving three different parties.

We are seeing something similar play out right now with the acquisition of R.R. Donnelley & Sons Company (RRD). The company has been in the middle of a bidding war between Atlas Holdings and Chatham Asset Management. We had added RRD to our list of potential deals on 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. RRD, however entered into an agreement to be acquired by Atlas Holdings. We wrote the following in our Merger Arbitrage post titled: Merger Arbitrage Mondays – R. R. Donnelley To Be Acquired By Atlas Holdings

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.

After multiple rounds of counter offers, RRD terminated its agreement with Atlas Holdings on December 14, 2021 and agreed to be acquired by Chatham Asset Management for $10.85 per share in cash. This increased bid was almost 45% higher than Chatham’s original bid of $7.50 for RRD on October 12, 2021. Much to the delight of arbitrageurs, the bidding war has still not ended. On December 29, 2021, RRD received an unsolicited non-bidding “Alternative Acquisition Proposal” from a strategic party to acquire RRD for $11.00 per share in cash.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) that automatically updates itself during market hours.

The following seven deals had a closing date of December 31, 2021, but since they have not yet been completed, we are extending the closing dates for these deals to the end of the first quarter of 2022.

  1. The acquisition of Independence Holding Company (IHC) by Geneve Holdings
  2. The acquisition of Dawson Geophysical Company (DWSN) by Wilks Brothers
  3. The acquisition of Nuance Communications (NUAN) by Microsoft (MSFT)
  4. The acquisition of People’s United Financial (PBCT) by M&T Bank Corporation (MTB)
  5. The acquisition of Flagstar Bancorp (FBC) by New York Community Bancorp (NYCB)
  6. The acquisition of PNM Resources (PNM) by Avangrid (AGR)
  7. The acquisition of 51job (JOBS) by Garnet Faith Limited

There was one new deal announced in the Deals in the Works section last week.

SPAC Arbitrage

SPAC activity was also low with only three new SPAC IPOs filed. There were no new SPAC 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 24 and December 31, 2021.

Company Quote
Last Week
Spread Change
BRG26.39Blackstone Real Estate (N/A)13.11%0.00%13.11%Special Conditions
PVG14.09Newcrest Mining Limited (NCMGY)17.812.18%0.82%1.36%All Stock
MGP40.85VICI Properties Inc. (VICI)30.110.69%-0.59%1.28%All Stock
FVCB19.81Blue Ridge Bankshares, Inc. (BRBS)17.93.84%2.71%1.13%All Stock
NFH11.46Unicorn II Holdings Limited (N/A)4.71%3.63%1.08%All Cash
TMX45.23Rentokil Initial plc (RTOKY)40.1321.60%24.01%-2.41%Special Conditions
GSS3.83Chifeng Jilong Gold Mining Co., Ltd. (N/A)2.09%5.11%-3.02%All Cash
JOBS48.93Garnet Faith Limited (N/A)61.56%66.07%-4.51%All Cash
RRD11.26Chatham Asset Management, LLC (N/A)-3.64%1.12%-4.76%All Cash
NES3.04Select Energy Services, Inc. (WTTR)6.23-47.72%-20.93%-26.79%All Stock

Deal Statistics:

Total Number of Pending Deals
Cash Deals43
Stock Deals29
Stock & Cash Deals7
Special Conditions6
Total Number of Pending Deals85
Total Deal Size$457.51 billion

Deal Updates:

  1. On December 29, 2021, R.R. Donnelley & Sons Company (RRDannounced the receipt of an unsolicited non-binding “Alternative Acquisition Proposal” from a strategic party to acquire all of the outstanding shares of RRD’s common stock for $11.00 per share in cash.
  2. On December 30, 2021, Centene Corporation (CNC) and Magellan Health (MGLN) announced that they have obtained all required regulatory approvals necessary to close Centene’s pending acquisition of Magellan Health. Subject to the satisfaction of customary closing deliveries, the parties anticipate closing the acquisition on or about January 4, 2022.
  3. On December 30, 2021, Advanced Micro Devices (AMD) and Xilinx (XLNXreleased a statement, stating that they now expect the transaction to close in the first quarter of 2022.
  4. On December 30, 2021, Golden Star Resources (GSS) announced that its shareholders approved a special resolution (the “Arrangement Resolution”) in respect of a statutory plan of arrangement under Section 192 of the Canada Business Corporations Act, involving the company and Chifeng Jilong Gold Mining.
  5. On December 30, 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 Transaction is not subject to shareholder approval and is currently expected to close in the first quarter of 2022 upon receipt of regulatory approval.

Closed Deals:

  1. The acquisition of Dicerna Pharmaceuticals (DRNA) by Novo Nordisk (NVO) on December 27, 2021. It took 39 days for this deal to be completed.
  2. The acquisition of CoreSite Realty Corporation (COR) by American Tower Corporation (AMT) on December 28, 2021. It took 43 days for this deal to be completed.

Top 10 deals with largest spreads:

JOBS06/21/2021Garnet Faith Limited (N/A)$79.05$48.9312/31/202161.56%-11234.21%
TMX12/14/2021Rentokil Initial plc (RTOKY)$55.00$45.2312/31/202221.60%21.72%
CHNG01/06/2021UnitedHealth Group Incorporated (UNH)$25.75$21.3806/30/202220.44%41.68%
XLNX10/27/2020Advanced Micro Devices, Inc. (AMD)$248.00$212.0303/31/202216.96%70.36%
MNTV10/28/2021Zendesk (ZEN)$23.47$20.7406/30/202213.14%26.79%
BRG12/20/2021Blackstone Real Estate (N/A)$29.85$26.3906/30/202213.11%26.73%
PNM10/21/2020Avangrid, Inc. (AGR)$50.30$45.6112/31/202110.28%-1876.62%
AJRD12/20/2020Lockheed Martin Corporation (LMT)$51.00$46.7603/31/20229.07%37.61%
ARNA12/13/2021Pfizer Inc. (PFE)$100.00$92.9406/30/20227.60%15.49%
SJR03/15/2021Rogers Communications Inc. (RCI)$32.40$30.3406/30/20226.79%13.84%

List of all pending deals:

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


M&A activity in 2021 rebounded sharply with 219 deals announced that were worth over $841 billion in comparison to $605 worth of deals announced in 2020. 194 active deals were successfully completed and 16 active deals were terminated. 111 potential deals in the works were announced in 2021 and 44 of these entered into definitive merger agreements. We expect this momentum to continue in the first part of 2022 before tapering in the second half of the year. Widening spreads on account of perceived regulatory issues and potential interest rate hikes,  combined with bidding wars is going to make for fertile hunting grounds for arbitrageurs in 2022.

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.