Merger Arbitrage Mondays – Musk Attempts To Pull Out Of The Twitter Deal

  • July 11, 2022

Merger activity increased last week with four new deals announced and four deals completed.

Twitter – Musk Enters Litigation Phase

Last week ended with Elon Musk announcing on Friday, July 8, 2022, that he is pulling out of the Twitter (TWTR) deal, alleging that the company has failed to comply with its contractual obligations. In response, the Twitter Board issued a statement, saying that they are committed to closing the transaction on the agreed price and terms with Mr. Musk and they also plan to pursue legal action to enforce the merger agreement.

This could be yet another tactic by Musk to attempt to get the Board back on the table to renegotiate the deal. When we discussed the Twitter deal in our June 2022 Special Situations Newsletter we wrote the following about the deal,

“The latest developments made me reassess my probabilities of this deal closing and I now think there is a 60% to 65% chance for the deal to complete at the original price of $54.20. I think that the probability of the deal closing at a renegotiated price is about 80%. I think any price cut is likely to be in the 10% to 15% range. Assuming the deal is renegotiated at a 15% haircut to the original price, we get a price of $46.07 or a $6.47 spread from the current price.

The probabilities I have indicated above both for the deal closing and a renegotiated price are my opinions based on both following the merger arbitrage strategy for over a decade and as a Twitter investor. The future could unfold in myriad other ways. It is also possible that Elon could still attempt to walk away from the deal and the two parties could be stuck in court for an extended period of time. This could cause the stock to drop further and cause an exodus of employees from Twitter. New CEO Parag Agarwal has already let go of two top executives and three other Vice Presidents left a couple of weeks ago. The company has also initiated a partial hiring freeze and has rescinded some employment offers.

If the deal breaks, the price Twitter falls to will not be the unaffected price before Elon Musk announced his 9.2% stake in early April but well below those levels.

In a deal break, I would not mind owning Twitter stock as I feel this saga and prevailing market conditions has motivated management to right size the ship and long-term outcomes could be favorable for investors.”

There is a slim possibility of the deal going through at its original price but as I indicated above, I would not mind holding Twitter as a long-term core position even if the deal falls through. I think that odds in Twitter’s favor if the deal enters litigation and there is more likely to be a settlement at a lower price than not.

Twitter Spread History

Resolute Forest Products (RFP)

Headquartered in Montreal, Quebec, Resolute Forest Products operates in the forest products industry. The company operates through four segments: Market Pulp, Tissue, Wood Products, and Paper. In 2009, the company filed for bankruptcy protection in the United States and Canada.

On July 6, 2022, Resolute Forest Products entered into a definitive agreement to be acquired by The Paper Excellence Group, through its wholly-owned subsidiary Domtar Corporation. Paper Excellence acquired Domtar last year for $3 billion. Under the terms of the agreement, Domtar will acquire Resolute for an enterprise value of $2.7 billion or $20.5 per share in cash, representing a premium of approximately 64% to Resolute’s closing share price on July 5, 2022. The deal also includes a CVR, entitling the holder to a share of future softwood lumber duty deposit refunds.

Each share, on a fully diluted basis at closing, will be entitled to receive one CVR. According to RBC, the contingent value right, associated with the Resolute Forest Products sale to Domtar is likely worth over $3 per share. We like deals with CVRs, especially if we can get the CVR for free or very close to free since not every CVR tends to pay out. The spread on the deal (excluding the CVR) is 1.99% since Resolute is trading at $20.10 per share.

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

Deals In The Works

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

SPAC Arbitrage

There were three new SPAC combination announced last week. You can find new SPAC IPO announcements in our SPACs tool here.

  1. On July 5, 2022, Orchestra BioMed, a biomedical company and Health Sciences Acquisitions Corporation 2 (HSAQannounced a definitive business combination agreement.
  2. On July 6, 2022, Emergência Participações S.A., an environmental and industrial service provider in Brazil with a global presence, announced that it has entered into a definitive business combination agreement with HPX Corp. (HPX).
  3. On July 7, 2022, Kingswood Acquisition (KWACannounced a definitive agreement to enter into a business combination with Wentworth Management Services LLC.

Weekly Spread Changes:

The table below shows weekly spread changes between July 1 and July 8, 2022.

Company Quote
Last Week
Spread Change
SJR27.95Rogers Communications Inc. (RCI)47.4615.92%8.65%7.27%Special Conditions
TWTR36.81Elon Musk (N/A)47.24%41.77%5.47%All Cash
TGNA20.05Standard General L.P. (N/A)19.70%14.34%5.36%Special Conditions
TXMD9.48EW Healthcare Partners (N/A)0.005.49%0.40%5.09%All Cash
HLG13.49Hailiang Education International Limited (N/A)6.08%2.21%3.87%All Cash
MBII1.05Bioceres Crop Solutions Corp. (BIOX)12.222.42%9.02%-6.60%All Stock
HTA28.86Healthcare Realty Trust Incorporated (HR)25.826.17%13.39%-7.22%Cash Plus Stock
ATC20.95MKS Instruments, Inc. (MKSI)99.513.55%11.83%-8.28%Cash Plus Stock
TEN19.22Apollo Global Management, Inc. (APO)51.564.06%14.61%-10.55%All Cash
EXTN4.26Enerflex Ltd. (EFX.TO)5.9710.51%23.67%-13.16%All Stock

Deal Statistics:

Total Number of Deals Closed in 202297
Total Number of Deals Not Completed in 20224
Total Number of Pending Deals
Cash Deals55
Stock Deals19
Stock & Cash Deals4
Special Conditions9
Total Number of Pending Deals87
Aggregate Deal Consideration$978.01 billion

New Deals:

  1. The acquisition of Tyme Technologies (TYME) by Syros Pharmaceuticals (SYRS) for $67.2 million in an all stock deal. Under the terms of the agreement, shareholders of Tyme Technologies will receive approximately 0.4312 shares of Syros common stock for each share of TYME common stock.
  2. The acquisition of Alexco Resource (AXU) by Hecla Mining Company (HL) for $75.24 million in an all stock deal. Under the terms of the agreement, Alexco shareholders will receive 0.116 of a Hecla share for each Alexco common share they hold as of the effective date of the agreement.
  3. The acquisition of Resolute Forest Products (RFP) by The Paper Excellence Group for $2.7 billion or $20.5 per share in cash, together with a CVR entitling the holder to a share of future softwood lumber duty deposit refunds. Each share, on a fully diluted basis at closing, will be entitled to receive one CVR.
  4. The acquisition of Meridian Bioscience (VIVO) by SD Biosensor and SJL Partners for $1.53 billion or $34 per share in cash.

Deal Updates:

  1. On July 1, 2022, GCP Applied Technologies (GCP) announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to it’s pending transaction with Saint-Gobain.
  2. On July 5, 2022, Bloomberg reported that Broadcom’s (AVGO) deal for VMware (VMW) will move forward after a rival bidder failed to emerge to break up the deal during the “go-shop” period.
  3. On July 6, 2022, Bloomberg reported that the UK competition regulator has opened an investigation into Microsoft’s (MSFT) purchase of Activision Blizzard (ATVI) joining other regulators in scrutinizing the deal.
  4. July 6, 2022: According to a press release, the early mediation between Rogers Communications (RCI), Shaw Communications (SJR), and the Commissioner of Competition on July 4 and July 5, 2022, did not result in a resolution of the Commissioner’s objections to the proposed merger.
  5. On July 7, 2022, Tenneco (TEN) announced that all conditions to closing under the Merger Agreement with respect to antitrust and/or foreign direct investment laws have been satisfied or waived in accordance with the terms and conditions of the Merger Agreement except for the conditions pertaining to the antitrust and competition laws of the European Union, Japan and Mexico.
  6. On July 7, 2022, Spirit Airlines (SAVEpostponed a shareholder vote scheduled for Friday on its sale to Frontier Group Holdings (ULCC) so its board can continue discussions with both Frontier and JetBlue Airways (JBLU). The company intends to reconvene the Special Meeting on July 15, 2022.
  7. On July 7, 2022, shareholders of Natus Medical Incorporated (NTUSapproved the company’s merger with ArchiMed at a special meeting of shareholders.
  8. On July 8, 2022, Twitter (TWTR) received a notice of purported termination from Elon Musk and the Twitter Board issued the following statement in response: “We are committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plan to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.”
  9. On July 8, 2022, PS Business Parks (PSB) announced that it expects to complete its previously announced transaction with Blackstone Real Estate on or around July 20, 2022 following the special meeting of PSB’s common stockholders on July 15, 2022. The PSB Board of Directors declared (i) a prorated quarterly cash dividend on PSB common stock and (ii) a cash dividend of $5.25 per share of PSB common stock.

Closed Deals:

  1. The acquisition of CMC Materials (CCMP) by Entegris (ENTG) on July 6, 2022. It took 203 days for this deal to be completed.
  2. The acquisition of Neenah (NP) by Schweitzer-Mauduit International (SWM) on July 6, 2022. It took 100 days for this deal to be completed.
  3. The acquisition of CDK Global (CDK) by Brookfield Business Partners on July 6, 2022. It took 90 days for this deal to be completed.
  4. The acquisition of GTY Technology Holdings (GTYH) by GI Partners on July 7, 2022. It took 69 days for this deal to be completed.

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.

TWTR04/25/2022Elon Musk (N/A)$54.20$36.8112/31/202247.24%99.10%
BKI05/04/2022Intercontinental Exchange, Inc. (ICE)$85.00$65.1906/30/202330.39%31.24%
TYME07/05/2022Syros Pharmaceuticals, Inc. (SYRS)$0.38$0.290212/31/202230.16%63.27%
SIMO05/05/2022MaxLinear, Inc. (MXL)$107.17$82.4506/30/202329.98%30.83%
VMW05/26/2022Broadcom Inc. (AVGO)$142.50$113.604/30/202325.44%31.58%
ATVI01/18/2022Microsoft Corporation (MSFT)$95.00$78.1306/30/202321.59%22.20%
TGNA02/22/2022Standard General L.P. (N/A)$24.00$20.0512/31/202219.70%41.33%
CHNG01/06/2021UnitedHealth Group Incorporated (UNH)$27.75$23.2212/31/202219.51%40.92%
NLSN03/29/2022Evergreen Coast Capital Corporation (N/A)$28.00$23.7212/31/202218.04%37.85%
SJR03/15/2021Rogers Communications Inc. (RCI)$32.40$27.9509/30/202215.92%70.87%

List of all pending deals:

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

Target VolumeEstimated
Closing Date
+TWTR4/25/22Elon Musk (N/A)All Cash$44 B$54.20$36.8119,113,36412/31/2247.24%99.67%
+TMX12/14/21Rentokil Initial plc (RTOKY)Special Conditions$6.7 B$55.00$41.75770,4619/30/2231.74%143.01%
+BKI5/04/22Intercontinental Exchange, Inc. (ICE)Special Conditions$16 B$85.00$65.19257,1586/30/2330.39%31.33%
+TYME7/05/22Syros Pharmaceuticals, Inc. (SYRS)All Stock$67.2 M$0.38$0.29022,068,00512/31/2230.16%63.64%
+SIMO5/05/22MaxLinear, Inc. (MXL)Cash Plus Stock$8 B$107.17$82.45151,2726/30/2329.98%30.91%
+VMW5/26/22Broadcom Inc. (AVGO)Special Conditions$69 B$142.50$113.6983,6644/30/2325.44%31.69%
+ATVI1/18/22Microsoft Corporation (MSFT)All Cash$68.7 B$95.00$78.133,951,8816/30/2321.59%22.26%
+TGNA2/22/22Standard General L.P. (N/A)Special Conditions$8.6 B$24.00$20.05940,32412/31/2219.70%41.57%
+CHNG1/06/21UnitedHealth Group Incorporated (UNH)All Cash$13.28 B$27.75$23.222,022,58212/31/2219.51%41.16%
+NLSN3/29/22Evergreen Coast Capital Corporation (N/A)All Cash$16 B$28.00$23.721,295,07212/31/2218.04%38.07%
+SJR3/15/21Rogers Communications Inc. (RCI)Special Conditions$26 B$32.40$27.95364,8549/30/2215.92%71.74%
+AUY5/31/22Gold Fields Limited (GFI)All Stock$6.7 B$5.51$4.7813,500,18012/31/2215.36%32.40%
+TSEM2/15/22Intel Corporation (INTC)All Cash$5.4 B$53.00$46.42442,0492/15/2314.17%23.62%
+FSTX6/23/22invoX Pharma (N/A)All Cash$161 M$7.12$6.24380,69812/31/2214.10%29.75%
+FHN2/28/22The Toronto-Dominion Bank (TD)Special Conditions$13.4 B$25.00$21.952,690,36111/27/2213.90%36.49%
+BRG12/20/21Blackstone Real Estate (N/A)Special Conditions$3.6 B$29.85$26.38185,9369/30/2213.15%59.27%
+EXTN1/24/22Enerflex Ltd. (EFX.TO)All Stock$735 M$4.70$4.26179,3589/30/2210.21%46.03%
+USWS6/21/22ProFrac Holding Corp. (PFHC)All Stock$546.29 M$0.96$0.8776666,01612/31/229.69%20.45%
+MGI2/15/22Madison Dearborn Partners, LLC (N/A)All Cash$1.8 B$11.00$10.12539,29812/31/228.70%18.35%
+VG11/22/21Ericsson (ERIC)All Cash$6.2 B$21.00$19.521,400,6988/22/227.58%65.89%
+BLCT4/30/22Multelements Limited (N/A)All Cash$60 M$1.60$1.4965,27412/31/227.38%15.58%
+LHCG3/28/22Optum (N/A)All Cash$6.2 B$170.00$158.93273,56512/31/226.97%14.70%
+SJI2/24/22Infrastructure Investments Fund (N/A)All Cash$8.1 B$36.00$33.77687,01412/31/226.60%13.93%
+PNM10/21/20Avangrid, Inc. (AGR)All Cash$8.05 B$50.30$47.21323,9369/30/226.55%29.49%
+MILE11/08/21Lemonade (LMND)All Stock$201.47 M$1.13$1.06398,9507/31/226.24%113.92%
+HTA2/28/22Healthcare Realty Trust Incorporated (HR)Cash Plus Stock$10.74 B$30.64$28.868,215,7829/30/226.17%27.79%
+HLG5/09/22Hailiang Education International Limited (N/A)All Cash$368.89 M$14.31$13.491,0219/30/226.08%27.39%
+RDUS6/23/22Gurnet Point Capital (N/A)All Cash$890 M$11.00$10.39560,2049/30/225.87%26.46%
+TXMD5/31/22EW Healthcare Partners (N/A)All Cash$177 M$10.00$9.48716,2237/13/225.49%1001.05%
+ROG11/02/21DuPont de Nemours, Inc. (DD)All Cash$5.2 B$277.00$262.68172,8739/30/225.45%24.57%
+CTXS1/31/22Vista Equity Partners and Elliott Investment Management LP (N/A)All Cash$16.5 B$104.00$99.22594,0177/31/224.82%87.92%
+GSV6/13/22Orla Mining Ltd. (ORLA)All Stock$138.14 M$0.32$0.3016173,6858/31/224.78%34.23%
+CTEK5/23/22Clearwater Compliance LLC (N/A)All Cash$13.9 M$1.25$1.266,6419/30/224.17%18.78%
+TEN2/23/22Apollo Global Management, Inc. (APO)All Cash$7.1 B$20.00$19.221,831,74012/31/224.06%8.56%
+ZEN6/24/22Permira and Hellman & Friedman LLC (N/A)All Cash$10.2 B$77.50$74.613,605,18412/31/223.87%8.17%
+ATC7/01/21MKS Instruments, Inc. (MKSI)Cash Plus Stock$6.5 B$21.69$20.951,037,0439/30/223.55%15.98%
+MNDT3/08/22Alphabet Inc. (GOOG)All Cash$5.4 B$23.00$22.275,479,94912/31/223.28%6.92%
+TUFN4/06/22Turn/River Capital (N/A)All Cash$570 M$13.00$12.61392,7749/30/223.09%13.94%
+VIVO7/07/22SD Biosensor and SJL Partners (N/A)All Cash$1.53 B$34.00$333,649,53712/31/223.03%6.39%
+FBC4/26/21New York Community Bancorp, Inc. (NYCB)All Stock$2.6 B$37.22$36.14180,84410/31/222.99%9.74%
+SAIL4/11/22Thoma Bravo (N/A)All Cash$6.9 B$65.25$63.45866,29212/31/222.84%5.99%
+HMLP5/25/22Höegh LNG Holdings Ltd. (N/A)All Cash$167.6 M$9.25$9111,15012/31/222.78%5.86%
+MN4/01/22Callodine (N/A)All Cash$137.1 M$12.85$12.54111,8589/30/222.47%11.14%
+BKEP4/22/22Ergon, Inc. (N/A)All Cash$199.72 M$4.65$4.5400413,0389/30/222.42%10.92%
+MBII3/16/22Bioceres Crop Solutions Corp. (BIOX)All Stock$236 M$1.08$1.05586,6009/30/222.42%10.88%
+STON5/25/22Axar Capital Management, LP (N/A)All Cash$927.7 M$3.50$3.42127,5489/30/222.34%10.54%
+RNDB3/28/22Hometown Financial Group, Inc. (N/A)All Cash$146.5 M$27.00$26.43,24112/31/222.27%4.80%
+SREV5/09/22Concentrix Corporation (CNXC)All Cash$164.49 M$1.50$1.47261,79412/31/222.04%4.31%
+BHVN5/10/22Pfizer Inc. (PFE)Special Conditions$11.6 B$148.50$145.55664,3443/31/232.03%2.81%
+USAK6/24/22DB Schenker (N/A)All Cash$435 M$31.72$31.09137,52112/31/222.03%4.28%
+RFP7/06/22The Paper Excellence Group (N/A)Special Conditions$2.7 B$20.50$20.102,287,2376/30/231.99%2.05%
+NTUS4/18/22ArchiMed (N/A)All Cash$1.2 B$33.50$32.87133,7269/30/221.92%8.64%
+NPTN11/04/21Lumentum Holdings Inc. (LITE)All Cash$745.24 M$16.00$15.72877,54912/31/221.78%3.76%
+Y3/21/22Berkshire Hathaway (BRK.A)All Cash$11.6 B$848.02$834.5729,89612/31/221.61%3.40%
+SWCH5/11/22DigitalBridge Group, Inc. (DBRG)All Cash$11 B$34.25$33.721,900,69112/31/221.57%3.32%
+OBCI6/22/22OneWater Marine Inc. (ONEW)All Cash$125 M$13.08$12.8913,4839/30/221.47%6.64%
+UMPQ10/12/21Columbia Banking System, Inc. (COLB)All Stock$4.5 B$17.59$17.35752,9139/30/221.41%6.34%
+CTT5/31/22PotlatchDeltic Corporation (PCH)All Stock$1.06 B$10.48$10.34338,33412/31/221.36%2.88%
+NSR5/02/22Sandstorm Gold Ltd. (SAND)All Stock$585.29 M$6.98$6.8915,38012/31/221.33%2.81%
+CVET5/25/22Clayton, Dubilier & Rice and TPG Capital (N/A)All Cash$4 B$21.00$20.75676,58112/31/221.20%2.54%
+ACC4/19/22Blackstone (BX)All Cash$12.8 B$65.47$64.91598,7629/30/220.86%3.89%
+DRE6/13/22Prologis, Inc. (PLD)All Stock$26 B$57.75$57.271,608,90312/31/220.84%1.77%
+TPTX6/03/22Bristol Myers Squibb (BMY)All Cash$1.66 B$76.00$75.381,635,0549/30/220.82%3.71%
+POLY3/28/22HP Inc. (HPQ)All Cash$3.3 B$40.00$39.69553,01912/31/220.78%1.65%
+GCP12/06/21Saint-Gobain (N/A)All Cash$2.3 B$32.00$31.76657,11112/31/220.76%1.59%
+CDR3/02/22Wheeler Real Estate Investment Trust, Inc. (WHLR)All Cash$291.3 M$29.00$28.811,939,2879/30/220.66%2.97%
+MANT5/16/22The Carlyle Group Inc. (CG)All Cash$4.2 B$96.00$95.38184,41412/31/220.65%1.37%
+MTOR2/22/22Cummins Inc. (CMI)All Cash$3.7 B$36.50$36.311,524,66912/31/220.52%1.10%
+WBT7/14/21Ali Holding S.r.l. (N/A)All Cash$4.8 B$24.00$23.881,432,2847/14/220.50%61.14%
+ETTX5/23/22Innoviva, Inc. (INVA)All Cash$87.32 M$2.20$2.1968,8349/30/220.46%2.06%
+CNR3/07/22Clayton, Dubilier & Rice (N/A)All Cash$5.8 B$24.65$24.551,902,4949/30/220.41%1.84%
+CNVY6/21/22TPG Capital (N/A)All Cash$1.1 B$10.50$10.46168,56012/31/220.38%0.81%
+RTLR5/16/22Diamondback Energy, Inc. (FANG)All Stock$2.36 B$13.15$13.1298,1859/30/220.35%1.56%
+PSB4/25/22Blackstone (BX)All Cash$7.6 B$187.50$187.21168,6477/20/220.15%6.28%
+STCN6/13/22Steel Partners Holdings L.P. (SPLP)All Cash$519.36 M$1.35$1.3515,82912/31/220.00%0.00%
+ABTX11/10/21CBTX, Inc. (CBTX)All Stock$1.5 B$38.99$39.0474,2779/30/22-0.12%-0.56%
+SRLP6/02/22Hartree Partners, LP (N/A)All Cash$1.44 B$19.00$19.0525,8729/30/22-0.26%-1.18%
+AXU7/05/22Hecla Mining Company (HL)All Stock$75.24 M$0.42$0.42461,602,4579/30/22-0.28%-1.27%
+SAVE2/07/22Frontier Group Holdings, Inc. (ULCC)Cash Plus Stock$6.6 B$24.69$24.92,933,22512/31/22-0.84%-1.78%
+EPZM6/27/22Ipsen (N/A)Special Conditions$247 M$1.45$1.481,739,8319/30/22-2.03%-9.13%
+PTRS11/04/21OceanFirst Financial Corp. (OCFC)All Stock$186 M$8.73$9.152849/30/22-4.63%-20.87%
+SAFM8/09/21Cargill and Continental Grain Company (N/A)All Cash$4.49 B$203.00$216.14124,2979/30/22-6.08%-27.39%
+PCSB5/24/22Brookline Bancorp, Inc. (BRKL)All Stock$313 M$17.69$19.0238,82612/31/22-6.97%-14.71%
+EMCF3/24/22Farmers National Banc Corp. (FMNB)All Stock$105 M$31.93$35.44981,49712/31/22-9.94%-20.96%
+HMTV5/09/22Gato Investments LP (N/A)All Cash$658.07 M$7.00$8.07188,2049/30/22-13.26%-59.75%
+ELSE6/13/22Mobile X Global, Inc. (N/A)All Cash$9.89 M$4.83$5.9116,6319/30/22-18.29%-82.41%
+RDBX5/11/22Chicken Soup for the Soul Entertainment, Inc. (CSSE)All Stock$182.9 M$0.69$6.222,071,19412/31/22-88.91%-187.58%

Disclaimer: I have long positions in Biohaven Pharmaceutical (BHVN), 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.