Current market conditions have impacted several previously uncorrelated assets that dropped in unison over the last couple of weeks and we have also seen merger arbitrage spreads widen. There have been times when arbitrage spreads have been very tight and I looked for opportunities in one of the other four strategies we track on Inside Arbitrage but this is not one of those times. The widening of spreads have created some wonderful opportunities, even among all cash deals that are not subject to regulatory risks. Premium members can access all active deals in our Merger Arbitrage tool here, filter by the type of deal (all cash, cash plus stock, etc.) and sort by the return or annualized return columns to bring up interesting deals worth exploring. Clicking on the symbol will bring up the deal metrics page and the spread history chart will give you an idea of the direction of the spread.
I love deals that include a contingent value right (CVR) that entitles you to a free or nearly free lottery ticket that pays out in the future based on the target company hitting certain milestones. Every once in a while, the CVR pays out handsomely like it did with Allergan’s acquisition of Tobira Therapeutics or Cerberus’ acquisition of Safeway. There have also been times like United Therapeutics’ (UTHR) acquisition of SteadyMed or Bristol-Myers Squibb’s (BMY) acquisition of Celgene where the CVR did not pay anything. We participated in the Celgene deal as discussed here and it worked out great despite the CVR not paying out. We wrote the following in an article titled Tobira Therapeutics Hits The Jackpot And Provides A Nice Kicker,