Merger Arbitrage Mondays – ‘To Be Or Not To Be?’ – The Twitter Musk Trial
October 10, 2022
Merger activity remained steady last week with three new deals announced and nine deals completed.
The Final Stretch in the Twitter (TWTR) and Elon Musk Saga
Negotiations and litigation between Elon Musk and Twitter have been going on for months, starting before the deal was officially announced in April this year. On October 4, 2022, Elon Musk stated in a court filing that he was working to finance a deal to complete the acquisition of Twitter on the original agreed terms and asked to delay the trial that was scheduled to start on October 17, 2022. This news caused Twitter’s stock to jump over 20% on Oct 4. Twitter opposed the motion but the judge granted a stay of the trial and gave both the parties time until October 28 to complete the deal.
The biggest issue now is Mr. Musk’s ability to raise the debt needed for the deal. I think the deal is in the final stretch and added to my position last week.
The court case between Twitter (TWTR) and Elon Musk aired a lot of dirty laundry and a particular exchange of texts between Mr. Musk and Jack Dorsey made me realize that Jack Dorsey had no business being the CEO of Twitter, let alone two different public companies.
CEOs sitting around in their ivory towers of idealism need a reality check. I am certainly glad Elliott Management got involved in Twitter in early 2020, got a board seat and replaced Jack Dorsey with Parag Agarwal in 2021.
The specific text messages I am referring to are given below,
Twitter
Twitter
I have reviewed and followed over a thousand mergers during the last decade and I don’t think I have ever seen a saga as crazy as Elon Musk’s on again/off again acquisition of Twitter. The drama started even before a definitive merger agreement was inked where Mr. Musk wanted to purchase Twitter but Twitter was not interested in selling itself and adopted a poison pill provision.
Other deals facing regulatory hurdles include the acquisition of TEGNA (TGNA) by Standard General and the acquisition of Activision Blizzard (ATVI) by Microsoft Corporation (MSFT). Last week House Speaker Nancy Pelosi urged the FCC to scrutinize Tegna’s takeover, citing concerns that the transaction could lead to less local news and journalism job cuts. Microsoft’s acquisition of Activision Blizzard continues to face an in-depth probe in the UK, with EU antitrust regulators wanting to know whether Microsoft will block rivals after the deal.
The FCC has requested additional information from Tegna and Standard General and the company’s responses are due by October 13th. According to a M&A journalist I was communicating with last week,
“The FCC has received and continues to receive aood oflings in both support and opposition to the transaction. A former FCC ofcial believes the transaction will be a good thing for the industry, local news, and diversity and does “not see any harm in this deal.”
The “ticking fee” with four escalating tiers that kicks in if the deal is delayed past next month will offset some of the impact from the deal getting delayed. The four tiers are,
i) $0.05 per month if the closing occurs between the 9- and 12-month anniversary of signing
ii) increasing to $0.075 per month if the closing occurs between the 12- and 13-month anniversary of signing
iii) $0.10 per month if the closing occurs between the 13- and 14-month anniversary of signing and
iv) $0.125 per month if the closing occurs between the 14- and 15-month anniversary of signing.
I continue to remain long both Tegna and Activision Blizzard.
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
152
Total Number of Deals Not Completed in 2022
5
Total Number of Pending Deals
Cash Deals
49
Stock Deals
18
Stock & Cash Deals
2
Special Conditions
8
Total Number of Pending Deals
77
Aggregate Deal Consideration
$1.07 trillion
New Deals:
The acquisition of LogicBio Therapeutics (LOGC) by Alexio, AstraZeneca Rare Disease. Under the terms of the agreement, Alexion, through a subsidiary, will initiate a cash tender offer to acquire all outstanding shares of LogicBio for $2.07 per share.
Umpqua Holdings Corporation (UMPQ) announced that its Board of Directors approved a quarterly cash dividend of $0.21 per common share. The dividend is payable on October 28, 2022, to shareholders of record as of October 14, 2022.
On October 4, 2022, UK’s antitrust regulator set a deadline of March 1 to decide on Microsoft’s (MSFT) planned $69 billion acquisition of Activision (ATVI).
October 4, 2022: According to The Wall Street Journal, Elon Musk has offered to close his $44 billion deal to buy Twitter (TWTR) on the terms he originally agreed to.
On October 6, 2022, Spirit Airlines (SAVE) announced that independent proxy advisory firms Institutional Shareholder Services and Glass, Lewis have recommended that Spirit stockholders vote FOR the merger agreement with JetBlue Airways Corporation (JBLU).
Activision Blizzard (ATVI) announced that Lulu Cheng Meservey will assume a newly created role as Executive Vice President, Corporate Affairs and Chief Communications Officer.
F-star Therapeutics (FSTX) and invoX Pharma cleared UK’s National Security and Investment Act (“NSIA”).
Sierra Wireless (SWIR) and Semtech Corporation (SMTC) received approval from the Canada Business Corporations Act.
On October 5, 2022, Brazil’s antitrust regulator CADE approved Microsoft’s (MSFT) takeover of Activision (ATVI).
Terminix Global Holdings (TMX) – announced shareholders approval (Press Release)
TransGlobe Energy Corporation (TGA) – announced shareholders approval (Press Release)
Hurdles
Independent proxy advisory firm Glass, Lewis recommended that Avalara (AVLR) shareholders vote against the company’s proposed sale to Vista Equity Partners.
October 5, 2022: According to Reuters, Apollo Global Management (APO) and Sixth Street Partners, which had been looking to provide financing for Elon Musk’s proposed buyout of Twitter (TWTR), are no longer in talks with the billionaire entrepreneur.
October 6, 2022: House Speaker Nancy Pelosi Commerce Chairman Frank Pallone (D-NJ) sent a letter to the Federal Trade Commission to express their concerns about the proposed purchase of Tegna (TGNA). In response, Standard General issued a statement regarding its pending acquisition of TEGNA (TGNA), stating that the proposed TEGNA transaction complies with all FCC rules without the need for any waivers, divestitures, or special treatment.
October 6, 2022: According to The Wall Street Journal, a Delaware judge has postponed the trial, giving both Elon Musk and Twitter (TWTR) until 5 PM on October 28th to close the deal.
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.
Four new potential deals were added to the ‘Deals In The Works‘ section last week.
On October 6, 2022, Reuters reported that Berry Corporation (BRY) is exploring strategic options that could result in a sale.
On October 6, 2022, Engine Gaming and Media (GAME) commenced a process to explore and evaluate strategic options to enhance and preserve shareholder value.
On October 3, 2022, Engine Capital investor in Light & Wonder (LNW) (formerly known as Scientific Games Corp.) and its subsidiary Sciplay (SCPL) is urging the gaming companies to merge in an effort to improve value for their shareholders.
On October 6, 2022, Atlas (ATCO) disclosed that the consortium (that previously announced a proposal to acquire all of the outstanding common shares of Atlas) has made meaningful progress in negotiation of a potential transaction at a per share cash price of $15.50, plus payment of all ordinary course third quarter and fourth quarter 2022 dividends regardless of the timing of any closing.
SPAC Arbitrage
There was one new SPAC IPO filed, five new SPAC combinations announced and one terminated last week. You can find new SPAC IPO announcements in our SPACs tool here.
SPAC IPO
Aquaron Acquisition Corp. (AQUNU) announces pricing of $50 million IPO on October 3, 2022.
On October 5, 2022, Plutonian Acquisition Corp. filed its S-1 for a $50 million IPO as the first SPAC to file for an IPO in October thus far.
On October 4, 2022, Tekkorp Digital Acquisition Corp. (TEKK) announced that it will no longer pursue an extension of the date by which it must complete an initial business combination.
On October 7, 2022, Sarissa Capital Acquisition Corp. (SRSAU) announced that it will not consummate a business combination and will instead liquidate its trust, effective as of October 31, 2022.
On October 7, 2022, Orion Acquisition Corp. (OHPAU) filed a proxy for a shareholder vote to liquidate early.
On October 7, 2022, Lux Health Tech Acquisition Corp. (LUXA) announced that it will not consummate a business combination and will instead dissolve and liquidate its trust, effective as of the close of business on October 29.
Terminated
Goldenstone Acquisition Limited (GDST) entered into a joint agreement to terminate its combination with blockchain-based payments company, Roxe Holding.
Disclaimer: I have long positions in Spirit Airlines (SAVE), Atlas Air Worldwide (AAWW), Biohaven Pharmaceutical (BHVN), 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.
