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

  • February 14, 2022

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.

SymbolQuoteAcquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
MNTV16.03Zendesk (ZEN)116.2763.20%28.90%34.30%All Stock
NES1.85Select Energy Services, Inc. (WTTR)7.452.73%-18.74%21.47%All Stock
JOBS46.5Garnet Faith Limited (N/A)70.00%64.07%5.93%All Cash
PVG13.92Newcrest Mining Limited (NCMGY)17.1-0.69%-5.23%4.54%All Stock
AZPN139.96Emerson Electric Co. (EMR)94.7414.32%10.47%3.85%Special Conditions
TLMD2.9Patient Square Capital (N/A)0.003.45%6.01%-2.56%All Cash
ARNA93.81Pfizer Inc. (PFE)50.786.60%9.24%-2.64%All Cash
ATVI81.5Microsoft Corporation (MSFT)295.0416.56%19.87%-3.31%All Cash
STXB28.86Simmons First National Corporation (SFNC)28.821.86%5.18%-3.32%All Stock
CHNG20.4UnitedHealth Group Incorporated (UNH)478.1326.23%30.31%-4.08%All Cash

Deal Statistics:

Total Number of Deals Closed in 202220
Total Number of Deals Not Completed in 20222
Total Number of Pending Deals
Cash Deals40
Stock Deals19
Stock & Cash Deals8
Special Conditions8
Total Number of Pending Deals75
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:

SymbolAnnounced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
ProfitAnnualized
Profit
JOBS06/21/2021Garnet Faith Limited (N/A)$79.05$46.503/31/202270.00%555.43%
MNTV10/28/2021Zendesk (ZEN)$26.16$16.0306/30/202263.20%168.38%
TMX12/14/2021Rentokil Initial plc (RTOKY)$55.00$42.6912/31/202228.84%32.79%
CHNG01/06/2021UnitedHealth Group Incorporated (UNH)$25.75$20.406/30/202226.23%69.87%
ATVI01/18/2022Microsoft Corporation (MSFT)$95.00$81.503/31/202316.56%14.71%
AZPN10/11/2021Emerson Electric Co. (EMR)$160.00$139.9606/30/202214.32%38.15%
PNM10/21/2020Avangrid, Inc. (AGR)$50.30$44.6606/30/202212.63%33.65%
BRG12/20/2021Blackstone Real Estate (N/A)$29.85$26.5406/30/202212.47%33.23%
SAFM08/09/2021Cargill and Continental Grain Company (N/A)$203.00$183.9401/31/202210.36%-290.94%
SJR03/15/2021Rogers Communications Inc. (RCI)$32.40$29.4406/30/202210.05%26.79%

List of all pending deals:

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

TargetAnnounced
Date
AcquirerDeal
Type
Closing
Value
Deal
Price
Last
Price
Target VolumeEstimated
Closing Date
ReturnAnnualized
Return
+JOBS6/21/21Garnet Faith Limited (N/A)All Cash$3.63 B$79.05$46.5321,0143/31/2270.00%567.78%
+MNTV10/28/21Zendesk (ZEN)All Stock$4.21 B$26.16$16.0310,697,5986/30/2263.20%169.61%
+TMX12/14/21Rentokil Initial plc (RTOKY)Special Conditions$6.7 B$55.00$42.69697,92312/31/2228.84%32.89%
+CHNG1/06/21UnitedHealth Group Incorporated (UNH)All Cash$13.28 B$25.75$20.4871,9576/30/2226.23%70.38%
+ATVI1/18/22Microsoft Corporation (MSFT)All Cash$68.7 B$95.00$81.56,721,1113/31/2316.56%14.75%
+AZPN10/11/21Emerson Electric Co. (EMR)Special Conditions$12.34 B$160.00$139.96240,2396/30/2214.32%38.43%
+PNM10/21/20Avangrid, Inc. (AGR)All Cash$8.05 B$50.30$44.66346,9836/30/2212.63%33.89%
+BRG12/20/21Blackstone Real Estate (N/A)Special Conditions$3.6 B$29.85$26.54169,8596/30/2212.47%33.47%
+SAFM8/09/21Cargill and Continental Grain Company (N/A)All Cash$4.49 B$203.00$183.9477,8671/31/2210.36%0.00%
+SJR3/15/21Rogers Communications Inc. (RCI)Special Conditions$26 B$32.40$29.44232,1676/30/2210.05%26.98%
+COHR3/25/21II-VI Incorporated (IIVI)Cash Plus Stock$6.84 B$280.72$260.3133,1625/31/227.85%27.02%
+ZNGA1/10/22Take-Two Interactive Software, Inc. (TTWO)Special Conditions$12.7 B$9.86$9.1622,286,7636/30/227.64%20.51%
+EXTN1/24/22Enerflex Ltd. (EFX.TO)All Stock$735 M$6.32$5.9718,9399/30/227.12%11.40%
+ZGNX1/19/22UCB (N/A)Special Conditions$1.28 B$28.00$26.151,478,2126/30/227.07%18.99%
+SAVE2/07/22Frontier Group Holdings, Inc. (ULCC)Cash Plus Stock$6.6 B$28.24$26.396,393,74312/31/227.00%7.98%
+ARNA12/13/21Pfizer Inc. (PFE)All Cash$4.69 B$100.00$93.811,452,6576/30/226.60%17.71%
+VNE10/04/21Qualcomm Incorporated (QCOM)All Cash$3.87 B$37.00$35.251,441,2956/30/224.96%13.32%
+FRTA2/22/21Quikrete Holdings, Inc. (N/A)All Cash$2.74 B$24.00$22.94296,6413/31/224.62%37.48%
+CCMP12/15/21Entegris, Inc. (ENTG)Cash Plus Stock$6.5 B$189.09$182.02284,54112/31/223.88%4.43%
+OCDX12/23/21Quidel Corporation (QDEL)Cash Plus Stock$8.33 B$17.27$16.671,879,4906/30/223.61%9.68%
+PTRS11/04/21OceanFirst Financial Corp. (OCFC)Special Conditions$186 M$10.38$10.023,6406/30/223.59%9.64%
+TLMD2/03/22Patient Square Capital (N/A)All Cash$106.42 M$3.00$2.91,304,7646/30/223.45%9.25%
+XENT8/06/21Medtronic plc (MDT)All Cash$1.1 billion$28.25$27.33255,3773/31/223.37%27.30%
+CERN12/20/21Oracle Corporation (ORCL)All Cash$28.4 B$95.00$91.972,325,27412/31/223.29%3.76%
+NPTN11/04/21Lumentum Holdings Inc. (LITE)All Cash$745.24 M$16.00$15.491,322,94912/31/223.29%3.76%
+MILE11/08/21Lemonade (LMND)All Stock$201.47 M$1.53$1.481,290,3706/30/223.07%8.23%
+ISBC7/28/21Citizens Financial Group, Inc. (CFG)Cash Plus Stock$3.5 B$17.64$17.161,720,0376/30/222.78%7.47%
+NES12/13/21Select Energy Services, Inc. (WTTR)All Stock$45 M$1.90$1.85140,3363/31/222.73%22.14%
+PBCT2/22/21M&T Bank Corporation (MTB)All Stock$7.6 B$21.51$20.964,492,5623/31/222.63%21.34%
+NSEC1/26/22VR Insurance Holdings, Inc. (N/A)All Cash$41.4 M$16.35$15.93993,3516/30/222.57%6.90%
+ECOL2/09/22Republic Services, Inc. (RSG)All Cash$2.2 B$48.00$473,624,0796/30/222.13%5.71%
+CTXS1/31/22Vista Equity Partners and Elliott Investment Management LP (N/A)All Cash$16.5 B$104.00$101.993,147,2486/30/221.97%5.29%
+TSC10/20/21Raymond James Financial, Inc. (RJF)Cash Plus Stock$1.1 B$33.82$33.17176,3086/30/221.96%5.26%
+STXB11/19/21Simmons First National Corporation (SFNC)All Stock$581 M$29.40$28.8625,7896/30/221.86%4.99%
+ROG11/02/21DuPont de Nemours, Inc. (DD)All Cash$5.2 B$277.00$272.41534,8836/30/221.68%4.52%
+FBC4/26/21New York Community Bancorp, Inc. (NYCB)All Stock$2.6 B$46.58$45.91252,5943/31/221.45%11.75%
+BPMP12/20/21BP p.l.c. (BP)All Stock$2.45 B$19.11$18.85449,8843/31/221.36%11.07%
+GSKY9/15/21The Goldman Sachs Group (GS)All Stock$2.24 B$10.89$10.75687,3003/31/221.32%10.70%
+WBT7/14/21Ali Holding S.r.l. (N/A)All Cash$4.8 B$24.00$23.711,733,5321/31/221.22%0.00%
+LEVL11/04/21First Merchants Corporation (FRME)Cash Plus Stock$323.5 M$41.35$40.8511,9966/30/221.22%3.26%
+NUAN4/12/21Microsoft Corp (MSFT)All Cash$19.7 B$56.00$55.42,717,6483/31/221.08%8.78%
+FOE5/11/21Prince International Corporation (N/A)All Cash$2.1 B$22.00$21.77378,6553/31/221.06%8.57%
+FLOW12/13/21Lone Star Funds (N/A)All Cash$3.8 B$86.50$85.62578,9956/30/221.03%2.76%
+VG11/22/21Ericsson (ERIC)All Cash$6.2 B$21.00$20.799,526,9386/30/221.01%2.71%
+PSXP10/27/21Phillips 66 (PSX)All Stock$14.5 B$46.60$46.14598,2463/31/221.00%8.09%
+VRS12/19/21BillerudKorsnäs AB (N/A)All Cash$825 M$27.00$26.75223,9626/30/220.93%2.51%
+RRD12/14/21Chatham Asset Management, LLC (N/A)All Cash$2.3 B$10.85$10.752,178,6796/30/220.93%2.50%
+GCP12/06/21Saint-Gobain (N/A)All Cash$2.3 B$32.00$31.72582,89012/31/220.88%1.01%
+CONE11/15/21KKR and Global Infrastructure Partners (N/A)All Cash$15 B$90.50$89.82,798,9966/30/220.78%2.09%
+MCFE11/08/21Investor Group comprised of Advent, Permira, Crosspoint Capital, CPP Investments, GIC and ADIA (N/A)All Cash$14 B$26.00$25.81,274,2766/30/220.78%2.08%
+KRA9/27/21DL Chemical Co., Ltd. (N/A)All Cash$2.5 B$46.50$46.15333,6646/30/220.76%2.04%
+APR1/10/22Owens & Minor, Inc. (OMI)All Cash$1.62 B$37.50$37.22341,0876/30/220.75%2.02%
+UMPQ10/12/21Columbia Banking System, Inc. (COLB)All Stock$4.5 B$21.41$21.251,365,0906/30/220.74%1.98%
+ESBK10/04/21Community Bank System, Inc. (CBU)All Cash$82.8 M$23.10$22.94581,2523/31/220.67%5.45%
+ATC7/01/21MKS Instruments, Inc. (MKSI)Cash Plus Stock$6.5 B$24.20$24.06265,0353/31/220.59%4.82%
+MIME12/07/21Permira (N/A)All Cash$5.8 B$80.00$79.531,105,8576/30/220.59%1.59%
+EPAY12/17/21Thoma Bravo (N/A)All Cash$2.6 B$57.00$56.68862,0186/30/220.56%1.52%
+STFC7/12/21Liberty Mutual Holding Company Inc. (N/A)All Cash$2.48 B$52.00$51.7153,6273/31/220.56%4.55%
+MGP8/04/21VICI Properties Inc. (VICI)All Stock$17.2 billion$38.59$38.38559,3766/30/220.55%1.46%
+FTSI10/22/21ProFrac Holdings (N/A)All Cash$407.5 M$26.52$26.3973,0383/31/220.49%4.00%
+CSLT1/05/22Vera Whole Health (N/A)All Cash$261.35 M$2.05$2.04331,4663/31/220.49%3.98%
+ANAT8/09/21Brookfield Asset Management Reinsurance Partners Ltd. (BAMR)All Cash$5.1 B$190.00$189.3545,0326/30/220.34%0.92%
+ACBI7/23/21SouthState Corporation (SSB)All Stock$542 M$31.48$31.457,4173/31/220.26%2.12%
+INFO11/30/20S&P Global (SPGI)All Stock$44 B$110.02$109.752,141,9296/30/220.24%0.66%
+TACO12/06/21Jack in the Box Inc. (JACK)All Cash$575 M$12.51$12.48406,0193/31/220.24%1.95%
+FMBI6/01/21Old National Bancorp (ONB)All Stock$2.86 B$21.11$21.08598,2343/01/220.13%3.19%
+VCRA1/06/22Stryker (SYK)All Cash$3.09 B$79.25$79.151,244,1363/31/220.13%1.02%
+PAE10/25/21Amentum Government Services Holdings LLC (N/A)All Cash$1.9 B$10.05$10.04902,1013/31/220.10%0.81%
+MNR11/05/21Industrial Logistics Properties Trust (ILPT)All Cash$3.72 B$21.00$20.98525,5446/30/220.10%0.26%
+XLNX10/27/20Advanced Micro Devices, Inc. (AMD)All Stock$33.43 B$195.05$194.9222,838,0443/31/220.07%0.56%
+GNOG8/09/21DraftKings Inc. (DKNG)All Stock$1.52 B$8.52$8.51607,5503/31/220.06%0.52%
+IHC11/09/21Geneve Holdings, Inc. (N/A)All Cash$813.9 M$57.00$5717,1063/31/220.00%0.00%
+CPLG11/08/21Highgate and Cerberus Capital Management, L.P. (N/A)Special Conditions$1.5 B$15.65$15.722,788,5993/31/22-0.45%-3.61%
+PVG11/09/21Newcrest Mining Limited (NCMGY)All Stock$2.8 B$13.82$13.92863,7193/31/22-0.69%-5.61%
+ABTX11/10/21CBTX, Inc. (CBTX)All Stock$1.5 B$42.03$42.6543,9856/30/22-1.46%-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.