Merger Arbitrage Mondays – Black Knight To Be Acquired By Intercontinental Exchange

Merger activity decreased last week with three new deals announced and four deals completed. Two of the three deals announced were potential deals in the works. We saw yet another SPAC business combination fall apart.

Black Knight (BKI)

Founded in 2013 and headquartered in Jacksonville, Florida, Black Knight provides innovative, high-performance software, data and analytics for mortgage and home equity lending and servicing to the mortgage industry. Solutions offered by the company include Loan Origination System, Loan Servicing System, Secondary Marketing Automation and Data and Analytics Marketplace. Mortgage Monitor and Originations Market Monitor are monthly benchmark data reports published by Black Knight.

We added Black Knight as a potential deal in the works on on April 5, 2022, when Bloomberg reported that the company was exploring a potential sale after receiving takeover interest. BKI’s price after this announcement was $66.27.  On May 4, 2022, the company entered into a definitive agreement to be acquired by Intercontinental Exchange (ICE) in a deal valued at $13.1 billion. Investors can choose to receive the $85 per share consideration in cash (80%) or stock (20%) subject to proration, with the value of the cash election and the stock election equalized at closing.

ICE and Black Knight both offer loan origination software to mortgage lenders. According to Raymond James analyst Patrick O’Shaughnessy, this deal could potentially into antitrust issues as ICE’s Ellie Mae Encompass platform is the largest provider of loan origination software and Black Knight’s Empower is the “clear #2,”. The current spread on the deal is 19.87% and we are treating it as a “special conditions” deal worth $85 per share.

According to the merger agreement, Black Knight will be charged a termination fee of $398 million if it terminates the agreement, and Intercontinental Exchange will be charged a termination fee of $725 million if it terminates the agreement.

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

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Deals In The Works

There were three new deals announced in the Deals in the Works section last week.

SPAC Arbitrage

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

  1. On May 2, 2022, CH-AUTO TECHNOLOGY CORPORATION, an electric vehicle manufacturing and design service company based in China, and Mountain Crest Acquisition Corp. IV (MCAFentered into a definitive merger agreement.
  2. On May 2, 2022, VCV Power Sigma and VCV Power Gamma, a U.S.-based Bitcoin mining business, and Fortune Rise Acquisition Corporation (FRLAentered into a definitive merger agreement.

Terminated

  1. On May 3, 2022, Goldenbridge Acquisition Limited (GBRGterminated its previously announced agreement and plan of merger with AgiiPlus, by mutual agreement of all relevant parties.

Weekly Spread Changes:

The table below shows weekly spread changes between April 29 and May 7, 2022.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
HTA 29.84 Healthcare Realty Trust Incorporated (HR) 30.81 19.40% 4.73% 14.67% Cash Plus Stock
TEN 15.67 Apollo Global Management, Inc. (APO) 52.9 27.63% 16.48% 11.15% All Cash
SAVE 19.74 Frontier Group Holdings, Inc. (ULCC) 9.62 4.00% -5.03% 9.03% Cash Plus Stock
MBII 1.03 Bioceres Crop Solutions Corp. (BIOX) 13.47 15.08% 10.76% 4.32% All Stock
VG 19.37 Ericsson (ERIC) 7.71 8.42% 5.21% 3.21% All Cash
XENT 27.81 Medtronic plc (MDT) 103.45 1.58% 3.22% -1.64% All Cash
TWTR 49.8 Elon Musk (N/A) 8.84% 10.57% -1.73% All Cash
NP 37.37 Schweitzer-Mauduit International, Inc. (SWM) 25.93 -5.77% -3.48% -2.29% All Stock
AZPN 163.25 Emerson Electric Co. (EMR) 88.01 -1.99% 0.92% -2.91% Special Conditions
ATVI 77.84 Microsoft Corporation (MSFT) 274.73 22.05% 25.66% -3.61% All Cash

Deal Statistics:

Total Number of Deals Closed in 2022 66
Total Number of Deals Not Completed in 2022 4
Total Number of Pending Deals
Cash Deals 52
Stock Deals 10
Stock & Cash Deals 10
Special Conditions 8
Total Number of Pending Deals 80
Aggregate Deal Consideration $816.55 billion

New Deals:

  1. The acquisition of Nomad Royalty Company (NSR) by Sandstorm Gold (SAND) for $585.29 million in an all stock deal. Under the terms of the agreement, shareholders of Nomad will receive 1.21 common shares of Sandstorm for each Nomad Share held.
  2. The acquisition of Black Knight (BKI) by Intercontinental Exchange (ICE) for $16 billion or $85 per share. Black Knight shareholders can elect to receive either cash or stock, subject to proration, with the value of the cash election and the stock election equalized at closing. We added BKI as a potential deal to the Deals in the Works section on April 5, 2022,  and the price after the news of the potential deal came out was $66.27.
  3. The acquisition of Silicon Motion Technology Corporation (SIMO) by MaxLinear (MXL) for $8 billion in a cash plus stock deal. Under the terms of the definitive agreement, the transaction consideration will consist of $93.54 in cash and 0.388 shares of MaxLinear stock for each Silicon Motion ADS (American Depositary Share) and $23.385 in cash and 0.097 shares of MaxLinear common stock for each Silicon Motion ordinary share not represented by an ADS. We added SIMO as a potential deal to the Deals in the Works section on April 24, 2022,  and the price after the news of the potential deal came out was $87.02.

Deal Updates:

  1. On May 2, 2022, II-VI Incorporated (IIVI) and Coherent (COHRrefiled their Premerger Notification and Report Form (the “HSR Notification”) with the Federal Trade Commission and the U.S. Department of Justice, in connection with the previously-announced pending acquisition of Coherent by II-VI.
  2. On May 2, 2022, The Board of Directors of Spirit Airlines (SAVE) unanimously determined that the unsolicited proposal received from JetBlue Airways (JBLUdoes not constitute a ‘Superior Proposal’ as defined in Spirit’s merger agreement with Frontier Group Holdings (ULCC).
  3. On May 3, 2022, The Wall Street Journal reported that Welltower (WELLmade a nearly $5 billion all-cash bid for Healthcare Realty Trust (HR) shortly after the smaller REIT agreed to merge with Healthcare Trust of America (HTA) earlier this year.
  4. On May 3, 2022, Tufin Software Technologies (TUFN) announced that the special meeting of stockholders will be on June 7, 2022.
  5. On May 3, 2022, Partners Bancorp (PTRS), reported net income attributable to the company of $2.1 million, or $0.12 per share, for the three months ended March 31, 2022, a $1.0 million or 93.5% increase when compared to net income attributable to the company of $1.1 million, or $0.06 per share, for the same period in 2021.
  6. On May 4, 2022, Neenah (NPreported first quarter 2022 results. Record net sales of $284.8 million, were up 25 percent from the prior year, reflecting selling price actions to recover input costs and higher volume in both segments. Excluding the effects of the April 2021 Itasa acquisition and a facility closure, net sales were 12 percent higher.
  7. On May 4, 2022, Spirit Airlines (SAVEreported first quarter 2022 financial results. For the first quarter 2022, Spirit Airlines reported a net loss of $194.7 million, or a net loss of $1.79 per diluted share.
  8. On May 5, 2022,  Tenneco (TENannounced results for the first quarter of 2022 ending on March 31, 2022. First quarter total revenue was $4.6 billion, down 2% year-over-year. The company reported net loss of $38 million, or a loss of $0.46 per diluted share, compared to net income of $65 million, or $0.79 per diluted share, in the prior year. Tenneco also reported that it is on-track to complete pending transaction with Apollo Funds in the second half of 2022.
  9. On May 5, 2022, Vonage Holdings (VGannounced results for the quarter ended March 31, 2022. The company reported a consolidated revenue of $359 million, an increase of 8% year-over-year.
  10. On May 5, 2022, Take-Two Interactive Software (TTWO), entered into the Second Amendment to the previously announced Agreement and Plan of Merger with Zynga (ZNGA). The parties currently anticipate that the closing of the combination will occur on May 23, 2022.
  11. On May 5, 2022, Black Knight (BKI) announced unaudited financial results for the first quarter of 2022. The company reported revenues of $387.2 million, an increase of 11% and organic revenue growth of 9%. Operating income of $80.2 million was an increase of 18% as compared to the prior year quarter.
  12. On May 7, 2022, Rogers Communications (RCI) and Shaw Communications (SJRwere notified the Commissioner of Competition’s intention to file applications to the Competition Tribunal opposing Rogers’ proposed merger with Shaw.

Closed Deals:

  1. The acquisition of US Ecology (ECOL) by Republic Services (RSG) on May 2, 2022. It took 82 days for this deal to be completed.
  2. The acquisition of Huttig Building Products (HBP) by Woodgrain on May 3, 2022. It took 43 days for this deal to be completed.
  3. The acquisition of Golden Nugget Online Gaming (GNOG) by DraftKings (DKNG) on May 5, 2022. It took 269 days for this deal to be completed.
  4. The acquisition of 51job (JOBS) by Garnet Faith Limited on May 6, 2022.

Top 10 deals with largest spreads:

Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as “special situation” deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.

Symbol Announced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
Profit Annualized
Profit
TEN 02/23/2022 Apollo Global Management, Inc. (APO) $20.00 $15.67 12/31/2022 27.63% 42.56%
BLCT 04/30/2022 Multelements Limited (N/A) $1.60 $1.29 12/31/2022 24.03% 37.01%
ATVI 01/18/2022 Microsoft Corporation (MSFT) $95.00 $77.84 06/30/2023 22.05% 19.25%
ZNGA 01/10/2022 Take-Two Interactive Software, Inc. (TTWO) $9.86 $8.08 06/30/2022 22.03% 151.71%
BKI 05/04/2022 Intercontinental Exchange, Inc. (ICE) $85.00 $70.91 06/30/2023 19.87% 17.35%
HTA 02/28/2022 Healthcare Realty Trust Incorporated (HR) $35.63 $29.84 09/30/2022 19.40% 48.84%
SIMO 05/05/2022 MaxLinear, Inc. (MXL) $110.33 $92.68 06/30/2023 19.04% 16.63%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $27.75 $23.47 12/31/2022 18.24% 28.09%
MBII 03/16/2022 Bioceres Crop Solutions Corp. (BIOX) $1.19 $1.03 09/30/2022 15.08% 37.97%
MILE 11/08/2021 Lemonade (LMND) $1.12 $0.98 06/30/2022 14.06% 96.80%

List of all pending deals:

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

Conclusion:

SPAC activity dwindled again last week with only one SPAC IPO filed. Companies continued filing their first quarter earnings, and we can see a change in the spreads for some of the active deals. There was a significant change in the spread for the Healthcare Trust of America (HTA) deal last week, after Healthcare Realty Trust (HR), the company acquiring HTA received a $5 billion bid from Welltower (WELL).

Disclaimer: I have long positions in Twitter (TWTR), First Horizon (FHN), Tower Semiconductor (TSEM), Healthcare Trust of America (HTA), TEGNA (TGNA) 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.

2 Comments

  1. jocs-pelis
    May 9, 2022 at 5:36 am

    Hi, good job! I don’t know if it is possible, could you include the Dividends to calculate the return/spread?
    Goodbye

  2. Asif Suria
    May 9, 2022 at 11:51 am

    Thanks. On the full merger arbitrage tool we do display the dividend yield. We don’t include this automatically in the spread because sometimes the dividends are paid out but not always. Also the number of quarter the dividends might get paid are a little uncertain depending on when the deal might close. So we instead display the data to allow our subscribers to include this in their returns if they would like to.

    https://www.insidearbitrage.com/merger-arbitrage/

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