Merger Arbitrage Mondays: April 26, 2010

Includes: CRN, CTL, CYBS, GEO, V
by: Asif Suria

The M&A front last week saw three new deals and two deals that closed.

The three new deals include the acquisition of Qwest Communications International (NYSE:Q) by CenturyTel (NYSE:CTL) for $5.71 per share in an all stock deal that is expected to close more than a year later. Qwest Communications, a company tainted by insider trading by it’s guilty Ex-CEO Joe Nacchio, inched up just a little following the merger announcement and dropped on Friday on concerns that the deal may face regulatory approval issues and that CenturyTel may have a difficult time integrating this acquisition. The 8.19% spread on this deal is also the largest of the new merger announcements from last week. An arbitrage position that includes buying Qwest and shorting CenturyTel has to take into account the fact that CenturyTel’s dividend yield of 8.4% is larger than Qwest’s 6.1% yield, thereby reducing the spread to 5.89% after taking dividend payments on the short position into account.

The two other new deals include the acquisition of CyberSource (CYBS) by Visa (NYSE:V) for $26 per share in cash and the acquisition of Cornell Companies (CRN) by The GEO Group (NYSE:GEO) for a closing price of $27.82. Under the terms of the definitive agreement, stockholders of Cornell will have the option to elect to receive either

  • 1.3 shares of GEO common stock for each share of Cornell common stock or
  • An amount of cash consideration equal to the greater of (i) the fair market value of one share of GEO common stock plus $6.00 or (ii) the fair market value of 1.3 shares of GEO common stock.

The deals that closed were the acquisition of Lodgian (LGN) by LoneStar on April 20, acquisition of Facet Biotech (FACT) by Abbott (NYSE:ABT) on April 21 and acquisition of Chordiant Software (CHRD) by Pegasystems (NASDAQ:PEGA).

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