Merger Arbitrage Mondays – Rumored Deals, Regulatory Hurdles, and Rival Bids

Merger activity increased slightly last week with two new deals announced, and two deals completed. There was a significant increase in SPAC activity with nine SPACs entering into business combinations.

As we come close to the end of the year, things are beginning to heat up on the M&A front with rival bids, several large rumored deals and regulatory issues weighing  down multiple active deals.

Rumored Deals

Multiple Bids for Horizon Therapeutics (HZNP)

On November 29, 2022, we added Horizon Therapeutics as a potential deal in the works, when the company’s board had confirmed that it was engaged in highly preliminary discussions with Amgen (AMGN), Janssen Global Services (a unit of Johnson & Johnson), and Sanofi (SNY). Horizon’s shares were up 27% after the news of the possible takeover offers. Out of the three suitors, Johnson & Johnson (JNJ) and Sanofi dropped their bids, leaving Amgen as the only possible suitor.

The Wall Street Journal reported on Sunday, December 11, 2022 that Amgen is in advanced talks to buy drug company Horizon Therapeutics, in a takeover likely to be valued at well over $20 billion and mark the largest healthcare merger of the year.

I looked into the company following these rumors and it has a large stable of approved drugs that target both rare diseases and inflammatory/autoimmune diseases like osteoarthritis and rheumatoid arthritis. In addition to its FDA approved drugs, the company has an additional two drugs in phase 3 trials and 13 in phase 2 trials. Revenue growth (TTM) was over 25% at $3.7 billion and the company is expected to grow double digits again in 2023. Net income margin of 15.51% is below what I would have expected and the stock trades at a forward EV/EBITDA of 17. I can see why multiple companies were interested in acquiring the company and wouldn’t mind owning the company even if a deal does not materialize.

Coupa Software Incorporated (COUP)

Coupa Software is another possible takeover target by Thoma Bravo. We added COUP as a potential deal in the works on November 23, 2022, when Bloomberg reported that Vista Equity Partners was exploring an acquisition of the company. Coupa’s closing price after this announcement was $58.93. According to Bloomberg, “Thoma Bravo is in advanced talks to acquire Coupa Software after outbidding Vista Equity Partners. A deal for the San Mateo, California-based company could be announced as soon as this week.”

Regulatory Hurdles

Microsoft’s (MSFT) Acquisition of Activision Blizzard (ATVI)

On Thursday, December 8, 2022, the FTC sued to block Microsoft’s acquisition of Activision, one of the largest tech deals announced in two decades. The administrative complaint alleges that the deal, which would make Microsoft the third-largest video game publisher in the world, would give Microsoft “both the means and motive to harm competition”. The deal was announced on January 18, 2022, and is expected to be completed in fiscal year 2023. Apart from the FTC, the deal has been facing regulatory hurdles from the Australian Competition & Consumer Commission, UK’s antitrust regulator and the European Commission. The current spread on the deal is 26.4%. The stock barely budged on news of the FTC lawsuit, indicating the market thinks Microsoft has a good chance of winning this lawsuit.

Kroger’s (KR) Acquisition of Albertsons (ACI)

Another mega deal facing regulatory issues is the merger of grocery giants Kroger and Albertsons. The deal was announced on October 14, 2022 and almost instantly became a target for regulators and lawmakers. As part of the merger agreement, Albertsons is supposed to pay a special cash dividend of up to $4 billion to its shareholders. Washington State Attorney General Bob Ferguson filed a lawsuit on Tuesday, November 1, 2022, to block Albertsons from paying the special dividend to shareholders. On November 4, 2022, the Attorney General was granted a temporary restraining order, preventing the company from paying the previously announced $6.85 per common share special dividend, originally scheduled to be paid on November 7, 2022. On December 9, 2022, The Washington State Court denied the request for a preliminary injunction by the Attorney General and extended the existing temporary restraining order until December 19, 2022, to give the Attorney General an opportunity to appeal Friday’s ruling. The current spread on the deal is 27.46%.

Rival Bids

Orthofix Medical (OFIX)

Orthofix Medical, which is currently expected to combine with SeaSpine Holdings Corporation (SPNE), received an unsolicited takeover interest from two private equity firms for $23 per share in cash on November 30, 2022. Last week, the company disclosed that on December 2, 2022, it received a follow-up, unsolicited and non-binding indication of interest letter from the same two private equity fund sponsors to acquire all of the outstanding equity of Orthofix for $24.00 per share in cash. The current spread on the deal with SeaSpine is 18.1%.

ForgeRock (FORG)

ForgeRock entered into an agreement to be acquired by Thoma Bravo on October 11, 2022. On December 8, 2022, the company disclosed in a filing that an unidentified strategic buyer had recently considering making an offer.

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:

New Deals:

1. The merger of Salisbury Bancorp (SAL) with NBT Bancorp (NBTB) for $204 million in an all stock deal. Under the terms of the agreement, shareholders of Salisbury Bancorp will receive 0.7450 shares of NBT common stock.
2. The acquisition of Vivint Smart Home (VVNT) by NRG Energy (NRG) for $5.2 billion or $12 per share in cash.

Deal Updates:

1.  On December 5, 2022, F-star Therapeutics (FSTX) and invoX Pharma extended the expiration date for the tender offer to December 16, 2022. The Offer was previously set to expire on December 2, 2022.
2. On December 6, 2022, Benefitfocus (BNFT) and Voya Financial (VOYA) filed their preliminary proxy statement. The waiting period under the HSR Act is expected expire on December 14, 2022, unless earlier terminated or extended by a request for additional information and documentary material from the DOJ or FTC.
3. On December 7, 2022, LHC Group (LHCG) delivered written notice to UnitedHealth Group extending the Outside Date to March 28, 2023. The companies certified to the FTC their substantial compliance with their respective Second Requests. The deal is expected to be completed in the first quarter of 2023.
4. On December 8, 2022, Myovant Sciences (MYOV) and Sumitomo Chemical filed their preliminary proxy statement, stating that they made the filings required under the HSR Act on December 2, 2022. The applicable waiting period under the HSR Act will expire on January 2, 2022.
5. On December 8, 2022, Grindrod Shipping Holdings (GRIN) announced that effective from December 6th, 2022, Mr. Michael John Hankinson and Mr. Murray Paul Grindrod have retired as Directors of the company in accordance with the terms of the previously announced Transaction Implementation Agreement with Taylor Maritime Investments Limited.

Approvals

1. On December 2, 2022, Emclaire Financial (EMCF) received regulatory approvals.
2. On December 6, 2022, STORE Capital Corporation (STOR) received CFIUS approval.
3. On December 7, 2022, CarLotz (LOTZ) received shareholders approval.
4. December 8, 2022: Abiomed (ABMD) and Johnson & Johnson (JNJ) – waiting period under the HSR Act, expired.
5. December 8, 2022: KnowBe4 (KNBE) and Vista Equity Partners – waiting period under the HSR Act, expired.
6. On December 8, 2022, The European Commission approved, under the EU Merger Regulation, the acquisition of sole control of Micro Focus International (MFGP) by Open Text Corporation (OTEX).
7. On December 9, 2022, STORE Capital Corporation (STOR) received stockholders approved.
8. On December 9, 2022, Shareholders of Turquoise Hill Resources (TRQ) approved the company’s merger with Rio Tinto (RIO).
9. On December 9, 2022, Oyster Point Pharma (OYST) – waiting period under the HSR Act, expired.

Hurdles

1. Orthofix Medical (OFIX) disclosed a revised unsolicited takeover indication of interest from two private equity firms for $24 a share, up from a previous offer of $23. The company also said that the SeaSpine (SPNE) merger transaction continues to be in the best interests of Orthofix and its holders.
2. December 6, 2022: Bloomberg reported that Kroger’s (KR) acquisition of Albertsons (ACI) will face an in-depth review by the Federal Trade Commission, after the US regulator sent a so-called second request seeking additional information on the deal.
3. On December 7, 2022, Bloomberg reported that Microsoft (MSFT) executives are set to meet with US Federal Trade Commission Chair Lina Khan and other commissioners on Wednesday to make its final case in favor of its deal to buy Activision Blizzard (ATVI).
4. On December 8, 2022, The Wall Street Journal reported that the Federal Trade Commission has sued to block Activision Blizzard’s (ATVI) planned acquisition by Microsoft (MSFT).
5. On December 8, 2022, Colorado’s attorney general urged a Washington state court judge to block a $4 billion dividend proposed to be paid to shareholders ahead of the merger of Kroger (KR) and Albertsons (ACI).
6. ForgeRock (FORG) indicated in a filing that an unidentified strategic buyer was recently considering making an offer for the company.
7. December 9, 2022: The Wall Street Journal reported that Microsoft (MSFT) had been working for close to a year to calm regulators’ concerns about its acquisition of Activision Blizzard (ATVI), but the Federal Trade Commission’s suit to block the deal raised doubts about the company’s pledge not to shut out rivals.
8. December 9, 2022: According to Reuters, Broadcom (AVGO) is set to face a setback in its bid for VMware (VMW) with EU antitrust regulators poised to open a full-scale investigation into the deal.
9. On December 10, 2022, Albertsons Companies (ACI) said that Washington State Court had denied a request of preliminary injunction by the state’s Attorney General to prevent the company from paying $4 billion to shareholders in a special dividend.

Shareholders Meeting Schedule

1. UserTesting (USER) – January 10, 2023
2. ForgeRock (FORG) – January 12, 2023
3. Velodyne Lidar (VLDR) – January 26, 2023

Closed Deals:

1. The acquisition of Switch (SWCH) by DigitalBridge Group (DBRG) on December 6, 2022. It took 209 days for this deal to be completed.
2. The acquisition of CarLotz (LOTZ) by Shift Technologies (SFT) on December 9, 2022. It took 122 days for this deal to be completed.

Weekly Spread Changes:

The table below shows weekly spread changes between December 2, 2022, and December 9, 2022.

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.

Deals In The Works

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

1. On December 6, 2022, Bloomberg reported that Vince Holding (VNCE) a New York-based fashion brand, is exploring options including a sale.
2. On December 8, 2022, ForgeRock (FORG) notified in a filing that an unidentified strategic buyer was recently considering making an offer.
3. On December 8, 2022, Partners Bancorp (PTRS) announced that John W. Breda, CEO and Lloyd B. Harrison, III, former CEO, and current Senior Executive Vice President will work together on the company’s review of all strategic alternatives available to the company to enhance returns to shareholders and other special strategic projects.

Updates

1. According to WSJ, Johnson & Johnson (JNJ) unit, Janssen Global Services said that it does not intend to make an offer for biotech company Horizon Therapeutics (HZNP)
2. According to Reuters, French drugmaker Sanofi said that if it decides to bid for biotech company Horizon Therapeutics Plc (HZNP), it would do so in cash.
3. HMI Capital Management, (which owns 4.8% of Coupa), stated in a letter to Coupa’s (COUP) board that it will not support a deal unless it is at the right price and follows a sale process. Coupa Holder HMI says the firm should fetch $95 a share in the sale.
4. News Corporation (NWS) forms Special Committee to explore a potential combination with Fox Corporation following the receipt of letters from K. Rupert Murdoch and the Murdoch Family Trust, provided an update on the process in response to recent investor inquiries.
5. Diffusion Pharmaceuticals (DFFN) confirms strategic review process is ongoing and that it had received bids from more than 15 companies participating in review process.
6. Orthofix Medical (OFIX) disclosed an unsolicited takeover indication of interest from two private equity firms for $24 per share, an increase from a previous offer of $23.
7. Fox Corporation (FOXA): The Special Committee has been delegated full authority to evaluate the Potential Transaction. The letters indicated that Murdoch and the Murdoch Family Trust will not vote in favor of a transaction unless it is both recommended by the Special Committee and approved by a majority vote of the shares held by non-affiliated stockholders entitled to vote.
8. Titan Medical (TMDI), announced that in view of the commencement of the strategic review process announced on November 30, 2022, the special meeting of its shareholders scheduled for January 12, 2023 will be suspended and, if appropriate and necessary, rescheduled to a future date.

SPAC Arbitrage

Potential SPAC IPO

1. On December 7, 2022, AlphaTime Acquisition Corp filed for a $60 million IPO.

SPAC Business Combination

1. On December 5, 2022, The Flexi Group Holdings and TG Venture Acquisition Corp. (TGVC) entered into a definitive business combination agreement.
2. On December 6, 2022,  X Energy Reactor Company and Ares Acquisition Corporation (AAC) entered into a definitive business combination agreement.
3. On December 6, 2022, Infrared Cameras Holdings, Inc. and SportsMap Tech Acquisition Corp. (SMAP)  announced the signing of a definitive agreement for a business combination.
4. On December 6, 2022, Tigo Energy and Roth CH Acquisition IV Co. (ROCG) announced the signing of a definitive agreement for a business combination.
5. On December 7, 2022, MNG Airlines entered into a definitive agreement to become publicly traded via a business combination with Golden Falcon Acquisition Corp. (GFX).
6. On December 7, 2022, EDOC Acquisition Corp. (ADOC) and Australian Oilseeds Investments Pty Ltd., an Australian proprietary company entered into a definitive Business Combination Agreement.
7. On December 8, 2022, Banzai International and 7GC & Co. Holdings Inc. (VII) entered into a definitive business combination agreement that will result in Banzai becoming a publicly traded company.
8. On December 8, 2022, Modulex Modular Buildings and PHP Ventures Acquisition Corp. (PPHP) announced the signing of a definitive business combination agreement.
9. On December 9, 2022, Better World Acquisition Corp. (BWAC) entered into a Business Combination Agreement with Heritage Distilling Holding Company, Inc.

Completed

1. On December 9, 2022, Getaround (GETR) announced that it has completed its previously announced business combination with InterPrivate II Acquisition Corp.

Terminated

1. On December 5, 2022, Circle Internet Financial and Concord Acquisition (CND) announced the mutual termination of their proposed business combination.
2. On December 5, 2022, Footprint and Gores Holdings VIII (GIIX) mutually agreed to terminate their previously announced merger agreement effective immediately.
3. On December 6, 2022, Intrinsic Medicine, Inc. and Phoenix Biotech Acquisition Corp. (PBAX) announced the mutual termination of their previously announced business combination agreement due to current market conditions.

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 Abiomed (ABMD), Activision Blizzard (ATVI), Spirit Airlines (SAVE), Atlas Air Worldwide (AAWW), 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.