Merger activity increased last week with one new deal announced and seven deals closing. At a time when more than 10 deals trade with spreads of over 30% and 23 trade with spreads of over 10%, it is encouraging to see so many deals close including the acquisition of Sprint by T-Mobile (TMUS). The wide spreads continue to point to uncertainty related to the COVID-19 situation and we wrote the following last week,
If the economic situation deteriorates further and impacted industries are not able to benefit from the massive $2 trillion stimulus package that has now passed both houses of congress, there is a good possibility that several of these deals will fall apart.
Studying the material adverse change (MAC) clause of a merger agreement may not be sufficient, as acquirers could choose to walk away from deals and take their chances in the courts. Paying attention to the kind of acquirer, the macro environment and industry specific issues is very important at this juncture.
The only deal announced last week was the friendly merger of Alio Gold (ALO) with Argonaut Gold (ARGNF). Pete Dougherty, President & CEO of Argonaut stated: “This is a transaction which makes sense for both sets of shareholders. Combining complementary assets into one larger, more relevant company generates significant synergies. With a solid production base of over 235,000 gold equivalent ounces expected this year, a strong balance sheet and strong cash flow generation at current gold prices, we will be well positioned to evaluate and execute on growth opportunities from within the combined company’s development asset portfolio.”
The closing dates for some of the pending deals have been extended to the second quarter of 2020.