Merger Arbitrage Mondays – Lockheed Martin Scraps Plans To Buy Aerojet Rocketdyne

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

Antitrust scrutiny caused another deal to fail on Sunday. Lockheed Martin (LMT) announced the acquisition of Aerojet Rocketdyne (AJRD) over a year ago and the deal has been through several hurdles. Antitrust regulators announced early in 2021 that they would likely lengthen their investigation of the purchase. On January 25, 2022, the Federal Trade Commission sued to block the deal and Lockheed announced on Sunday that it has terminated its plans to acquire Aerojet. Given the widening spread on the deal in recent months, it does not come as a complete surprise that the deal failed. If we see forced selling by arbitrage focused funds, Aerojet might start to look attractive on a stand alone basis. The stock is currently trading at an EV/EBITDA below 10.

On February 7, 2022, Frontier Group Holdings (ULCC) announced that it is acquiring Spirit Airlines (SAVE) for $6.6 billion in a cash plus stock deal, representing a premium of of 19% over the February 4 closing price of Spirit, and a 26% premium based on the 30 trading-day volume-weighted average prices of Frontier and Spirit. Bill Franke, Chairman of Frontier Airlines has been the visionary behind this deal for over a decade. He was the Chairman of Spirit Airlines from 2006 to 2013. Bill Franke was involved in the IPOs of both Spirit and Frontier through Indigo Partners, a private equity firm that was co-founded by him.

Headquartered in Mirama, Florida, Spirit Airlines is a low-cost carrier that is known for its low ticket prices and for charging fees for other amenities like carry-ons, water, and even for printing a boarding pass. Spirit’s merger with Frontier would create a big player in the low-budget airfare market. The deal is currently trading at a spread of 7% or an annualized return of 8% assuming the deal closes by the end of the year.

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

There were six new deals announced in the Deals in the Works section last week. On Friday, February 11, 2022, The Wall Street Journal reported that, Cisco Systems (CSCO) has made a takeover offer worth more than $20 billion for software maker Splunk (SPLK).

One of the six potential deals we added last week turned out to be successful. We added US Ecology (ECOL) as a potential deal in the works on February 8, 2022, when Bloomberg reported that Republic Services (RSG) was in advanced talks to buy the company. ECOL’s price after this announcement was $28.17. The deal materialized the next day with ECOL agreeing to be acquired by RSG for $48 per share in cash.

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SPAC Arbitrage

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

  1. D-Wave Systems Inc., a quantum computing systems, software, and services provider entered into a definitive transaction agreement with DPCM Capital (XPOA).

Weekly Spread Changes:

The table below shows weekly spread changes between February 7 and February 11, 2022.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
MNTV 16.03 Zendesk (ZEN) 116.27 63.20% 28.90% 34.30% All Stock
NES 1.85 Select Energy Services, Inc. (WTTR) 7.45 2.73% -18.74% 21.47% All Stock
JOBS 46.5 Garnet Faith Limited (N/A) 70.00% 64.07% 5.93% All Cash
PVG 13.92 Newcrest Mining Limited (NCMGY) 17.1 -0.69% -5.23% 4.54% All Stock
AZPN 139.96 Emerson Electric Co. (EMR) 94.74 14.32% 10.47% 3.85% Special Conditions
TLMD 2.9 Patient Square Capital (N/A) 0.00 3.45% 6.01% -2.56% All Cash
ARNA 93.81 Pfizer Inc. (PFE) 50.78 6.60% 9.24% -2.64% All Cash
ATVI 81.5 Microsoft Corporation (MSFT) 295.04 16.56% 19.87% -3.31% All Cash
STXB 28.86 Simmons First National Corporation (SFNC) 28.82 1.86% 5.18% -3.32% All Stock
CHNG 20.4 UnitedHealth Group Incorporated (UNH) 478.13 26.23% 30.31% -4.08% All Cash

Deal Statistics:

Total Number of Deals Closed in 2022 20
Total Number of Deals Not Completed in 2022 2
Total Number of Pending Deals
Cash Deals 40
Stock Deals 19
Stock & Cash Deals 8
Special Conditions 8
Total Number of Pending Deals 75
Total Deal Size $567.44 billion

New Deals:

  1. The acquisition of Spirit Airlines (SAVE) by Frontier Group Holdings (ULCC) for $6.6 billion in a cash plus stock deal. Under the terms of the agreement, Spirit equity holders will receive 1.9126 shares of Frontier plus $2.13 in cash for each existing Spirit share they own.
  2. The acquisition of US Ecology (ECOL) by Republic Services (RSG) for $2.2 billion or $48 per share in cash.

Deal Updates:

  1. On February 3, 2022, Pfizer (PFEvoluntarily withdrew its HSR Act filing, refiling on February 7, 2022. The withdrawal and refiling are procedural steps to provide the Federal Trade Commission with an additional 30 days to complete its review of the proposed Merger with Arena Pharmaceuticals (ARNA). The waiting period with respect to the notification and report forms under the HSR Act is now scheduled to expire on March 9, 2022, unless extended or earlier terminated.
  2. On February 9, 2022, II-VI Incorporated (IIVI) reported that the pending acquisition of Coherent (COHR) has received the approval, or indication of imminent approval, from 3 out of 4 global antitrust regulatory authorities, which approvals are conditions to the closing of the transaction. In China, the remaining jurisdiction, II-VI and Coherent are continuing to work constructively with the State Administration for Market Regulation, and now anticipate closing the acquisition by the middle of the second calendar quarter of 2022.
  3. On February 9, 2022, shareholders of McAfee (MCFEapproved the company’s merger with an investor group comprised of Advent, Permira, Crosspoint Capital, CPP Investments, GIC and ADIA at a special meeting of shareholders.
  4. On February 9, 2022, shareholders of Vonage Holdings (VGapproved the company’s merger with Ericsson (ERIC) at a special meeting of shareholders.
  5. On February 10, 2022, Advanced Micro Devices (AMD) announced that it has received approval from all necessary authorities to proceed with the acquisition of Xilinx (XLNX).
  6. On February 10, 2022, PAE Incorporated (PAE) announced that its stockholders voted to approve and adopt the previously announced definitive agreement. The proposed transaction is expected to close on or around February 15, 2022.
  7. On February 10, 2022, Zendesk (ZEN) confirmed that its Board of Directors received, thoroughly reviewed and rejected an unsolicited, non-binding proposal from a consortium of private equity firms to acquire all of Zendesk’s outstanding shares in an all-cash transaction valued at $127-$132 per share.

Closed Deals:

  1. The acquisition of Kirkland Lake Gold (KL) by Agnico Eagle Mines Limited (AEM) on February 8, 2022. It took 133 days for this deal to be completed.

Terminated Deals:

  1. Lockheed Martin (LMTscrapped plans to buy Aerojet Rocketdyne Holdings (AJRD) after federal antitrust overseers last month sued to block the proposed deal.

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 $46.5 03/31/2022 70.00% 555.43%
MNTV 10/28/2021 Zendesk (ZEN) $26.16 $16.03 06/30/2022 63.20% 168.38%
TMX 12/14/2021 Rentokil Initial plc (RTOKY) $55.00 $42.69 12/31/2022 28.84% 32.79%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $20.4 06/30/2022 26.23% 69.87%
ATVI 01/18/2022 Microsoft Corporation (MSFT) $95.00 $81.5 03/31/2023 16.56% 14.71%
AZPN 10/11/2021 Emerson Electric Co. (EMR) $160.00 $139.96 06/30/2022 14.32% 38.15%
PNM 10/21/2020 Avangrid, Inc. (AGR) $50.30 $44.66 06/30/2022 12.63% 33.65%
BRG 12/20/2021 Blackstone Real Estate (N/A) $29.85 $26.54 06/30/2022 12.47% 33.23%
SAFM 08/09/2021 Cargill and Continental Grain Company (N/A) $203.00 $183.94 01/31/2022 10.36% -290.94%
SJR 03/15/2021 Rogers Communications Inc. (RCI) $32.40 $29.44 06/30/2022 10.05% 26.79%

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 $46.5 321,014 3/31/22 70.00% 567.78%
+ MNTV 10/28/21 Zendesk (ZEN) All Stock $4.21 B $26.16 $16.03 10,697,598 6/30/22 63.20% 169.61%
+ TMX 12/14/21 Rentokil Initial plc (RTOKY) Special Conditions $6.7 B $55.00 $42.69 697,923 12/31/22 28.84% 32.89%
+ CHNG 1/06/21 UnitedHealth Group Incorporated (UNH) All Cash $13.28 B $25.75 $20.4 871,957 6/30/22 26.23% 70.38%
+ ATVI 1/18/22 Microsoft Corporation (MSFT) All Cash $68.7 B $95.00 $81.5 6,721,111 3/31/23 16.56% 14.75%
+ AZPN 10/11/21 Emerson Electric Co. (EMR) Special Conditions $12.34 B $160.00 $139.96 240,239 6/30/22 14.32% 38.43%
+ PNM 10/21/20 Avangrid, Inc. (AGR) All Cash $8.05 B $50.30 $44.66 346,983 6/30/22 12.63% 33.89%
+ BRG 12/20/21 Blackstone Real Estate (N/A) Special Conditions $3.6 B $29.85 $26.54 169,859 6/30/22 12.47% 33.47%
+ SAFM 8/09/21 Cargill and Continental Grain Company (N/A) All Cash $4.49 B $203.00 $183.94 77,867 1/31/22 10.36% 0.00%
+ SJR 3/15/21 Rogers Communications Inc. (RCI) Special Conditions $26 B $32.40 $29.44 232,167 6/30/22 10.05% 26.98%
+ COHR 3/25/21 II-VI Incorporated (IIVI) Cash Plus Stock $6.84 B $280.72 $260.3 133,162 5/31/22 7.85% 27.02%
+ ZNGA 1/10/22 Take-Two Interactive Software, Inc. (TTWO) Special Conditions $12.7 B $9.86 $9.16 22,286,763 6/30/22 7.64% 20.51%
+ EXTN 1/24/22 Enerflex Ltd. (EFX.TO) All Stock $735 M $6.32 $5.9 718,939 9/30/22 7.12% 11.40%
+ ZGNX 1/19/22 UCB (N/A) Special Conditions $1.28 B $28.00 $26.15 1,478,212 6/30/22 7.07% 18.99%
+ SAVE 2/07/22 Frontier Group Holdings, Inc. (ULCC) Cash Plus Stock $6.6 B $28.24 $26.39 6,393,743 12/31/22 7.00% 7.98%
+ ARNA 12/13/21 Pfizer Inc. (PFE) All Cash $4.69 B $100.00 $93.81 1,452,657 6/30/22 6.60% 17.71%
+ VNE 10/04/21 Qualcomm Incorporated (QCOM) All Cash $3.87 B $37.00 $35.25 1,441,295 6/30/22 4.96% 13.32%
+ FRTA 2/22/21 Quikrete Holdings, Inc. (N/A) All Cash $2.74 B $24.00 $22.94 296,641 3/31/22 4.62% 37.48%
+ CCMP 12/15/21 Entegris, Inc. (ENTG) Cash Plus Stock $6.5 B $189.09 $182.02 284,541 12/31/22 3.88% 4.43%
+ OCDX 12/23/21 Quidel Corporation (QDEL) Cash Plus Stock $8.33 B $17.27 $16.67 1,879,490 6/30/22 3.61% 9.68%
+ PTRS 11/04/21 OceanFirst Financial Corp. (OCFC) Special Conditions $186 M $10.38 $10.02 3,640 6/30/22 3.59% 9.64%
+ TLMD 2/03/22 Patient Square Capital (N/A) All Cash $106.42 M $3.00 $2.9 1,304,764 6/30/22 3.45% 9.25%
+ XENT 8/06/21 Medtronic plc (MDT) All Cash $1.1 billion $28.25 $27.33 255,377 3/31/22 3.37% 27.30%
+ CERN 12/20/21 Oracle Corporation (ORCL) All Cash $28.4 B $95.00 $91.97 2,325,274 12/31/22 3.29% 3.76%
+ NPTN 11/04/21 Lumentum Holdings Inc. (LITE) All Cash $745.24 M $16.00 $15.49 1,322,949 12/31/22 3.29% 3.76%
+ MILE 11/08/21 Lemonade (LMND) All Stock $201.47 M $1.53 $1.48 1,290,370 6/30/22 3.07% 8.23%
+ ISBC 7/28/21 Citizens Financial Group, Inc. (CFG) Cash Plus Stock $3.5 B $17.64 $17.16 1,720,037 6/30/22 2.78% 7.47%
+ NES 12/13/21 Select Energy Services, Inc. (WTTR) All Stock $45 M $1.90 $1.85 140,336 3/31/22 2.73% 22.14%
+ PBCT 2/22/21 M&T Bank Corporation (MTB) All Stock $7.6 B $21.51 $20.96 4,492,562 3/31/22 2.63% 21.34%
+ NSEC 1/26/22 VR Insurance Holdings, Inc. (N/A) All Cash $41.4 M $16.35 $15.9399 3,351 6/30/22 2.57% 6.90%
+ ECOL 2/09/22 Republic Services, Inc. (RSG) All Cash $2.2 B $48.00 $47 3,624,079 6/30/22 2.13% 5.71%
+ CTXS 1/31/22 Vista Equity Partners and Elliott Investment Management LP (N/A) All Cash $16.5 B $104.00 $101.99 3,147,248 6/30/22 1.97% 5.29%
+ TSC 10/20/21 Raymond James Financial, Inc. (RJF) Cash Plus Stock $1.1 B $33.82 $33.17 176,308 6/30/22 1.96% 5.26%
+ STXB 11/19/21 Simmons First National Corporation (SFNC) All Stock $581 M $29.40 $28.86 25,789 6/30/22 1.86% 4.99%
+ ROG 11/02/21 DuPont de Nemours, Inc. (DD) All Cash $5.2 B $277.00 $272.41 534,883 6/30/22 1.68% 4.52%
+ FBC 4/26/21 New York Community Bancorp, Inc. (NYCB) All Stock $2.6 B $46.58 $45.91 252,594 3/31/22 1.45% 11.75%
+ BPMP 12/20/21 BP p.l.c. (BP) All Stock $2.45 B $19.11 $18.85 449,884 3/31/22 1.36% 11.07%
+ GSKY 9/15/21 The Goldman Sachs Group (GS) All Stock $2.24 B $10.89 $10.75 687,300 3/31/22 1.32% 10.70%
+ WBT 7/14/21 Ali Holding S.r.l. (N/A) All Cash $4.8 B $24.00 $23.71 1,733,532 1/31/22 1.22% 0.00%
+ LEVL 11/04/21 First Merchants Corporation (FRME) Cash Plus Stock $323.5 M $41.35 $40.85 11,996 6/30/22 1.22% 3.26%
+ NUAN 4/12/21 Microsoft Corp (MSFT) All Cash $19.7 B $56.00 $55.4 2,717,648 3/31/22 1.08% 8.78%
+ FOE 5/11/21 Prince International Corporation (N/A) All Cash $2.1 B $22.00 $21.77 378,655 3/31/22 1.06% 8.57%
+ FLOW 12/13/21 Lone Star Funds (N/A) All Cash $3.8 B $86.50 $85.62 578,995 6/30/22 1.03% 2.76%
+ VG 11/22/21 Ericsson (ERIC) All Cash $6.2 B $21.00 $20.79 9,526,938 6/30/22 1.01% 2.71%
+ PSXP 10/27/21 Phillips 66 (PSX) All Stock $14.5 B $46.60 $46.14 598,246 3/31/22 1.00% 8.09%
+ VRS 12/19/21 BillerudKorsnäs AB (N/A) All Cash $825 M $27.00 $26.75 223,962 6/30/22 0.93% 2.51%
+ RRD 12/14/21 Chatham Asset Management, LLC (N/A) All Cash $2.3 B $10.85 $10.75 2,178,679 6/30/22 0.93% 2.50%
+ GCP 12/06/21 Saint-Gobain (N/A) All Cash $2.3 B $32.00 $31.72 582,890 12/31/22 0.88% 1.01%
+ CONE 11/15/21 KKR and Global Infrastructure Partners (N/A) All Cash $15 B $90.50 $89.8 2,798,996 6/30/22 0.78% 2.09%
+ 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 $25.8 1,274,276 6/30/22 0.78% 2.08%
+ KRA 9/27/21 DL Chemical Co., Ltd. (N/A) All Cash $2.5 B $46.50 $46.15 333,664 6/30/22 0.76% 2.04%
+ APR 1/10/22 Owens & Minor, Inc. (OMI) All Cash $1.62 B $37.50 $37.22 341,087 6/30/22 0.75% 2.02%
+ UMPQ 10/12/21 Columbia Banking System, Inc. (COLB) All Stock $4.5 B $21.41 $21.25 1,365,090 6/30/22 0.74% 1.98%
+ ESBK 10/04/21 Community Bank System, Inc. (CBU) All Cash $82.8 M $23.10 $22.9458 1,252 3/31/22 0.67% 5.45%
+ ATC 7/01/21 MKS Instruments, Inc. (MKSI) Cash Plus Stock $6.5 B $24.20 $24.06 265,035 3/31/22 0.59% 4.82%
+ MIME 12/07/21 Permira (N/A) All Cash $5.8 B $80.00 $79.53 1,105,857 6/30/22 0.59% 1.59%
+ EPAY 12/17/21 Thoma Bravo (N/A) All Cash $2.6 B $57.00 $56.68 862,018 6/30/22 0.56% 1.52%
+ STFC 7/12/21 Liberty Mutual Holding Company Inc. (N/A) All Cash $2.48 B $52.00 $51.71 53,627 3/31/22 0.56% 4.55%
+ MGP 8/04/21 VICI Properties Inc. (VICI) All Stock $17.2 billion $38.59 $38.38 559,376 6/30/22 0.55% 1.46%
+ FTSI 10/22/21 ProFrac Holdings (N/A) All Cash $407.5 M $26.52 $26.39 73,038 3/31/22 0.49% 4.00%
+ CSLT 1/05/22 Vera Whole Health (N/A) All Cash $261.35 M $2.05 $2.04 331,466 3/31/22 0.49% 3.98%
+ ANAT 8/09/21 Brookfield Asset Management Reinsurance Partners Ltd. (BAMR) All Cash $5.1 B $190.00 $189.35 45,032 6/30/22 0.34% 0.92%
+ ACBI 7/23/21 SouthState Corporation (SSB) All Stock $542 M $31.48 $31.4 57,417 3/31/22 0.26% 2.12%
+ INFO 11/30/20 S&P Global (SPGI) All Stock $44 B $110.02 $109.75 2,141,929 6/30/22 0.24% 0.66%
+ TACO 12/06/21 Jack in the Box Inc. (JACK) All Cash $575 M $12.51 $12.48 406,019 3/31/22 0.24% 1.95%
+ FMBI 6/01/21 Old National Bancorp (ONB) All Stock $2.86 B $21.11 $21.08 598,234 3/01/22 0.13% 3.19%
+ VCRA 1/06/22 Stryker (SYK) All Cash $3.09 B $79.25 $79.15 1,244,136 3/31/22 0.13% 1.02%
+ PAE 10/25/21 Amentum Government Services Holdings LLC (N/A) All Cash $1.9 B $10.05 $10.04 902,101 3/31/22 0.10% 0.81%
+ MNR 11/05/21 Industrial Logistics Properties Trust (ILPT) All Cash $3.72 B $21.00 $20.98 525,544 6/30/22 0.10% 0.26%
+ XLNX 10/27/20 Advanced Micro Devices, Inc. (AMD) All Stock $33.43 B $195.05 $194.92 22,838,044 3/31/22 0.07% 0.56%
+ GNOG 8/09/21 DraftKings Inc. (DKNG) All Stock $1.52 B $8.52 $8.51 607,550 3/31/22 0.06% 0.52%
+ IHC 11/09/21 Geneve Holdings, Inc. (N/A) All Cash $813.9 M $57.00 $57 17,106 3/31/22 0.00% 0.00%
+ CPLG 11/08/21 Highgate and Cerberus Capital Management, L.P. (N/A) Special Conditions $1.5 B $15.65 $15.72 2,788,599 3/31/22 -0.45% -3.61%
+ PVG 11/09/21 Newcrest Mining Limited (NCMGY) All Stock $2.8 B $13.82 $13.92 863,719 3/31/22 -0.69% -5.61%
+ ABTX 11/10/21 CBTX, Inc. (CBTX) All Stock $1.5 B $42.03 $42.65 43,985 6/30/22 -1.46% -3.92%

Conclusion:

SPAC activity picked up last week with nine new SPAC IPOs filed. SPAC business combinations dropped on the other hand, with only one new SPAC business combination announced.

Deal targets like Activision Blizzard (ATVI), Zynga (ZNGA) and Spirit Airlines (SAVE) are trading well below their acquisition prices reflecting both a challenging regulatory environment and the potential for higher interest rates in the future.

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.

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