Merger Arbitrage Mondays – Harold Hamm Buys Continental Resources

Merger activity increased last week with eight new deals announced and eight deals completed. There has also been a significant increase in SPAC business combinations in the past few weeks. There were nine SPAC business combinations announced last week.

Continental Resources (CLR) to be taken private

Oklahoma City-based Continental Resources is the largest oil producer in the Bakken Fields of North Dakota and Montana. In the past one year, the company has expanded into Wyoming and the Permian Basin of Texas and New Mexico. Billionaire fracking pioneer Harold Hamm founded Continental Resources in 1967 and took it public in 2007.

We first wrote about Continental Resource in our August 2020 Special Situations Newsletter, after witnessing significant insider buying across the energy industry. We wrote the following in the newsletter,

In this challenging environment it is hard to think about companies on the long side but the insider purchases by Harold Hamm in the energy production company Continental Resources last month stood out for its sheer size. The April swoon in energy prices, which at one point saw West Texas Intermediate (WTI) futures dip into negative territory for the first time ever, roiled energy markets worldwide. The global benchmark Brent oil futures did not come close to the decline WTI futures experienced but most energy companies were hit hard by the COVID-19 related collapse in demand and the sudden drop in oil futures.

Harold Hamm started buying shares of Continental Resources on the open market on June 23rd and over the course of the next two weeks acquired 10.55 million shares worth $178 million at an average price of $16.87. Following these purchases, he now owns 295.47 million shares representing 81% of the total shares outstanding. Harold Hamm feels so strongly about just how undervalued CLR is that he took the unusual step to announce his purchases through a press release where he stated,

“I firmly believe Continental’s current share price reflects an uncommon value as the global pandemic has negatively impacted worldwide crude oil demand. Recent purchases underscore my confidence in the Company’s continued operational excellence and strong financial performance. Continental is poised to deliver significant shareholder value for many years to come and I believe there is no management team more aligned with shareholders than Continental”

I am normally skeptical when insiders issue a press release following an insider purchase as it appears that they are signaling the market, which could very well be the case here. The interesting part of the press release was that he also indicated that he has set up 10b5-1 purchase plan indicating he is likely to continue buying more CLR stock.

On June 14, 2022, we added Continental Resources (CLR) as a potential deal in the works, when the board of directors of the company received a non-binding proposal of $70 per share from Harold G. Hamm. CLR’s price went up to $74.22 after this announcement. The stock subsequently dropped into the low $60s providing an excellent opportunity to pick up the company before the official acquisition announcement. We picked the stock for the second time in July 2022 when CLR was trading at $65.35.

On October 17, 2022, Harold Hamm entered into an agreement to buy shares of Continental Resources not owned by him and his family for $74.28 per share in cash or $4.3 billion, taking one of the largest U.S. oil and gas producers private. The deal comes at a time when investors are putting pressure on U.S. shale companies to return more cash to shareholders and spend conservatively on production.

According to the Financial Times, Hamm said in a note to staff,

We have all felt the limits of being publicly held over the last few years, and in such a time as this, when the world desperately needs what we produce, I have never been more optimistic,”. The shale tycoon said privatization would give the company “freedom to explore” for more oil and grow “as we do our part to help secure America’s energy independence without any encumbrances”.

We added Continental Resources to the InsideArbitrage Model Portfolio in August 2020, and the position has become the best performer, up 328%.

CLR position in the InsideArbitrage Model Portfolio

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

Merger Arbitrage

Deal Statistics:

Total Number of Deals Closed in 2022 166
Total Number of Deals Not Completed in 2022 5
Total Number of Pending Deals
Cash Deals 46
Stock Deals 17
Stock & Cash Deals 2
Special Conditions 11
Total Number of Pending Deals 76
Aggregate Deal Consideration $1.12 trillion

New Deals:

  1. The acquisition of Continental Resources (CLR) by Omega Acquisition, an entity that is owned by Continental’s founder, Harold G. Hamm for $4.3 billion. Omega Acquisition will purchase any and all of the outstanding shares of Continental’s common stock at $74.28 per share. The offer price includes $0.28 in lieu of Continental’s anticipated dividend for the third quarter of 2022. We added CLR as a potential deal to the Deals in the Works section on June 14, 2022, and the price after the news of the potential deal came out was $74.22.
  2. The acquisition of Archaea Energy (LFG) by BP p.l.c. (BP) for $4.1 billion or $26 per share in cash.
  3. The acquisition of AVEO Oncology (AVEO) by LG Chem, Ltd. for $440.99 million or $15.00 per share in cash.
  4. The acquisition of Akouos (AKUS) by Eli Lilly and Company (LLY) for $248.84 million. Under the terms of the agreement, Lilly will acquire Akouos for a purchase price of $12.50 per share in cash plus one non-tradeable contingent value right per share (“CVR”) that entitles the holder to receive up to an additional $3.00 in cash, for a total consideration of up to $15.50 per share in cash without interest.
  5. The merger of HV Bancorp (HVBC) with Citizens Financial Services (CZFS) for $67.4 million in a cash or stock deal. Under the terms of the Agreement, the shareholders of HVBC will have the right to elect to receive for each share of HVBC common stock either $30.50 in cash or 0.400 shares of CZFS common stock. Elections will be subject to proration procedures whereby 80% of the shares of HVBC common stock will be exchanged for CZFS common stock and 20% of the shares of HVBC common stock will be exchanged for cash.
  6. The merger of Ayala Pharmaceuticals (AYLA) and Advaxis (ADXS) in an all stock deal. Under the terms of the agreement, each share of Ayala shall be automatically converted into the right to receive 0.1874 shares of Advaxis.
  7. The acquisition of Applied Genetic Technologies Corporation (AGTC) by Syncona Limited for $23.5 million. Under the terms of the agreement, shareholders of Applied Genetic Technologies Corporation will receive $0.34 per share in cash at the closing of the transaction plus potential future aggregate cash payments of up to $50.0 million (up to $0.73 per share) pursuant to contingent value rights (CVRs).
  8. The acquisition of Myovant Sciences (MYOV) by Sumitovant Biopharma for $2.9 billion or $27.00 per share in cash. We added MYOV as a potential deal to the Deals in the Works section on October 1, 2022, and the price after the news of the potential deal came out was $24.44.

Deal Updates:

  1. On October 15, 2022, STORE Capital Corporation (STOR) announced the expiration of the “go-shop” period set forth in the previously announced definitive merger agreement with GIC and Oak Street.
  2. On October 17, 2022, Pegasus Merger Co. extended the expiration date of tender offers to purchase Tenneco (TEN) to October 31, 2022.
  3. On October 17, 2022, Euronav NV (EURNsold the ULCC (Ultra Large Crude Carrier) Europe. The vessel is debt free and the sale will generate a capital gain of USD 34.7 million.
  4. On October 19, 2022, Turquoise Hill Resources (TRQ) announced that proxy advisor Glass Lewis has recommended that the company’s shareholders vote “FOR” the previously announced proposed plan of arrangement.
  5. October 20, 2022: Bloomberg reported that Biden administration officials are discussing whether the US should subject some of Elon Musk’s ventures to national security reviews, including the deal for Twitter (TWTR) and SpaceX’s Starlink satellite network.
  6. October 20, 2022: Reuters reported that Twitter (TWTRclarified to staff that there are no plans for company-wide layoffs since it signed a deal to be acquired by billionaire Elon Musk, after a media outlet reported that Musk is considering layoffs at the company.
  7. On October 21, 2022, Sprague Resources (SRLP) announced that it anticipates that the merger with Hartree Partners will close on or about November 1, 2022.

Approvals

  1. Ping Identity Holding (PING) received shareholders approval.
  2. Zymergen (ZY) received shareholders approval.
  3. iRobot Corporation (IRBT) received shareholders approval.
  4. ChemoCentryx (CCXI) received shareholders approval.
  5. Micro Focus International (MFGP) received shareholders approval.
  6. Spirit Airlines (SAVE) received shareholders approval.
  7. ChannelAdvisor Corporation (ECOM) – waiting period under HSR Act expired.
  8. Albertsons Companies (ACI) reported that, following the execution of the Merger Agreement with The Kroger Co. (KR): (i) the Cerberus Holders, (ii) entities affiliated with Klaff Realty, (iii) entities affiliated with Lubert-Adler Partners and (iv) KRS ABS, LLC, an entity affiliated with Kimco Realty Corporation, collectively the beneficial owners of 296,076,183 shares of Common Stock, which constitute approximately 55.4% of the voting power of the outstanding shares of Common Stock, each executed a written consent approving and adopting the Merger Agreement. No further approval of the stockholders of the company is required to adopt the Merger Agreement.

Hurdles

  1. On October 17, 2022, Standard General responded to the repeated ad hominem attacks made by opponents of its proposed acquisition of TEGNA (TGNA) at the U.S. Federal Communications Commission), raising concerns with certain opposing parties’ conduct in the proceeding.
  2. October 17, 2022: According to Reuters, Canada’s Competition Tribunal has scheduled in late October a mediation between Rogers Communications (RCI), Shaw Communications (SJR) and the agency for the merger of the telecom firms.
  3. On October 18, 2022, Semtech Corporation (SMTC) and Sierra Wireless (SWIR) announced that each company has received a request for additional information and documentary material from the U.S. Department of Justice in connection with Semtech’s previously announced acquisition of Sierra Wireless.
  4. October 18, 2022: According to Reuters, a U.S. Senate antitrust panel is expected to announce as soon as Tuesday a hearing on the merger of grocery giants Kroger (KR) and Albertsons (ACI), signaling growing scrutiny of the deal.
  5. On October 19, 2022, Sen. Elizabeth Warren called for the Federal Trade Commission to block Kroger’s (KR) planned acquisition of rival supermarket chain Albertsons (ACI).
  6. On October 19, 2022, CVS Health (CVS) & Signify Health (SGFYreceived a request for additional information (the second request) from the Dept. of Justice in connection with the merger review.
  7. On October 21, 2022, Reuters reported that thousands of unionized retail workers from the U.S. Mid-Atlantic to the West Coast are lobbying regulators and lawmakers as part of a broader effort to nix the merger between supermarket operators Kroger (KR) and Albertsons (ACI).

Shareholders Meeting Schedule

  1. Atlas Air Worldwide Holdings (AAWW) – November 29, 2022
  2. CyberOptics Corporation (CYBE) – November 2, 2022.

Closed Deals:

  1. The acquisition of Romeo Power (RMO) by Nikola Corporation (NKLA) on October 17, 2022. It took 74 days for this deal to be completed.
  2. The acquisition of Ping Identity Holding (PING) by Thoma Bravo on October 18, 2022. It took 76 days for this deal to be completed.
  3. The acquisition of Zymergen (ZY) by Ginkgo Bioworks (DNA) on October 19, 2022. It took 86 days for this deal to be completed.
  4. The acquisition of Shell Midstream Partners (SHLX) by Shell USA (SHEL) on October 19, 2022. It took 86 days for this deal to be completed.
  5. The acquisition of Avalara (AVLR) by Vista Equity Partners on October 19, 2022. It took 72 days for this deal to be completed.
  6. The acquisition of Alleghany Corporation (Y) by Berkshire Hathaway (BRK.A) on October 19, 2022. It took 212 days for this deal to be completed.
  7. The acquisition of ChemoCentryx (CCXI) by Amgen (AMGN) on October 20, 2022. It took 77 days for this deal to be completed.
  8. The acquisition of Manning & Napier (MN) by Callodine on October 21, 2022. It took 203 days for this deal to be completed.

Weekly Spread Changes:

The table below shows weekly spread changes between October 14, 2022, and October 21, 2022.

Symbol Quote Acquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
SIMO 56.13 MaxLinear, Inc. (MXL) 31.4 88.35% 77.20% 11.15% Cash Plus Stock
EMCF 29.75 Farmers National Banc Corp. (FMNB) 13.37 -3.38% -8.15% 4.77% All Stock
SWIR 29.53 Semtech Corporation (SMTC) 26.68 4.98% 0.75% 4.23% All Cash
BKI 60.27 Intercontinental Exchange, Inc. (ICE) 93.05 41.03% 37.94% 3.09% Special Conditions
TRQ 28.55 Rio Tinto (RIO) 55.56 10.39% 7.33% 3.06% All Cash
LOTZ 0.2425 Shift Technologies, Inc. (SFT) 0.485 38.43% 42.27% -3.84% All Stock
VMW 109.64 Broadcom Inc. (AVGO) 449.73 29.97% 34.22% -4.25% Special Conditions
ELSE 4.75 Mobile X Global, Inc. (N/A) 1.68% 6.15% -4.47% All Cash
FSTX 6.17 invoX Pharma (N/A) 15.40% 20.27% -4.87% All Cash
SAVE 20.3 JetBlue Airways Corporation (JBLU) 7.16 65.02% 72.41% -7.39% All Cash

Top 10 deals with the 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
SIMO 05/05/2022 MaxLinear, Inc. (MXL) $105.72 $56.13 06/30/2023 88.35% 129.00%
SAVE 07/28/2022 JetBlue Airways Corporation (JBLU) $33.50 $20.3 06/30/2024 65.02% 38.53%
BKI 05/04/2022 Intercontinental Exchange, Inc. (ICE) $85.00 $60.27 06/30/2023 41.03% 59.91%
LOTZ 08/09/2022 Shift Technologies, Inc. (SFT) $0.34 $0.2425 12/31/2022 38.43% 203.30%
ATVI 01/18/2022 Microsoft Corporation (MSFT) $95.00 $72.71 06/30/2023 30.66% 44.76%
VMW 05/26/2022 Broadcom Inc. (AVGO) $142.50 $109.64 04/30/2023 29.97% 57.88%
ACI 10/14/2022 The Kroger Co. (KR) $27.25 $21.08 03/31/2024 29.27% 20.35%
FCRD 10/04/2022 Crescent Capital BDC, Inc. (CCAP) $4.79 $3.89 03/31/2023 23.14% 53.11%
TSEM 02/15/2022 Intel Corporation (INTC) $53.00 $43.31 02/15/2023 22.37% 71.01%
SJR 03/15/2021 Rogers Communications Inc. (RCI) $29.70 $24.86 12/31/2022 19.45% 102.91%

Deals In The Works

Two new potential deals were added to the ‘Deals In The Works‘ section last week.

  1. On October 19, 2022, Bloomberg reported that SurveyMonkey owner Momentive Global (MNTV) is weighing a sale after getting takeover interest.
  2. On October 21, 2022, Veris Residential (VREconfirmed receipt of unsolicited proposals from Kushner Companies to externally manage the company or to acquire the company for $16.00 per share.

Updates

  1. On October 17, 2022, activist investor Starboard Value took a sizable stake in Splunk (SPLK) with plans to push the software maker to take action to boost its stock price.
  2. On October 18, 2022, Sierra Metals (SMTS) announced that a special committee comprised of its independent directors has initiated a process to evaluate and consider the company’s current financial and liquidity position, operational challenges and possible financing and restructuring alternatives.
  3. On October 18, 2022, Bloomberg reported that buyout firms CDH Investments and PAG are considering bids for US-listed Chinese data center company VNET Group (VNET).

SPAC Arbitrage

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

New Business Combinations

  1. On October 15, 2022, DLTx ASA and Blockchain Moon Acquisition Corp. (BMAQentered into a business combination agreement pursuant to which Blockchain Moon will acquire all of the subsidiaries and substantially all of the assets of DLTx ASA.
  2. On October 17, 2022, flyExclusive, a provider of premium private jet charter experiences, and EG Acquisition Corp. (EGGFentered into a definitive business combination agreement.
  3. On October 17, 2022, Oculis, SA., a biopharmaceutical company, and European Biotech Acquisition Corp (EBAC) announced they have entered into a definitive business combination agreement.
  4. On October 18, 2022, Parsec Capital Acquisitions Corp. (PCX) announced the execution of an agreement and plan of merger with Enteractive Media Inc.
  5. On October 18, 2022, Evo Acquisition Corp. (EVOJ) announced the execution of a definitive business combination agreement with 20Cube Logistics Pte. Ltd.
  6. On October 19, 2022, Super Apps Holdings Sdn Bhd, a Malaysian private limited company and Technology & Telecommunication Acquisition Corporation (TETEentered into a definitive agreement and plan of merger for a business combination.
  7. On October 20, 2022, AUM Biosciences and Mountain Crest Acquisition Corp. V (MCAGentered into a definitive business combination agreement.
  8. On October 20, 2022, Rose Hill Acquisition Corporation (ROSE) and Inversiones e Inmobilaria GHC Ltda, an exporter of superfruits based in Chile, announced that they have entered into a definitive business combination agreement that is expected to result in Prize becoming a U.S. publicly listed company.
  9. On October 21, 2022, Quality Gold and Tastemaker Acquisition Corp. (TMKRentered into a definitive agreement for a business combination that will result in Quality Gold becoming a public company.

Updates

  1. On October 17, 2022, Sanaby Health Acquisition Corp. I (SANB) announced that due to its inability to consummate an initial business combination within the time period required by its Amended and Restated Certificate of Incorporation, as amended) the company intends to dissolve and liquidate.
  2. On October 17, 2022, PWP Forward Acquisition Corp. I (FRW) filed a proxy statement to seek shareholder approval to liquidate early.
  3. On October 18, 2022, ION Acquisition Corp. 3 Ltd (IACC) filed a proxy statement to seek shareholder approval to liquidate early.

Terminated

  1. Benessere (BENE) announced that its merger target eCombustible has terminated the pair’s combination agreement.

List of all pending deals:

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

Disclaimer: I have long positions in Activision Blizzard (ATVI), Spirit Airlines (SAVE), Atlas Air Worldwide (AAWW), Twitter (TWTR), First Horizon (FHN), Tower Semiconductor (TSEM) and TEGNA (TGNA). 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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