Given the turn in the market last week and the fear of sovereign defaults, I expected deal activity to slow down or spreads to increase for existing deals. However we saw the same number of deals last week as in the week prior with 6 new deals announced and one deal that closed.
As for the increase in spreads, we saw the spread widen for the acquisition of The Allied Defense Group (ADG) by Chemring. The 40% discount that ADG is trading to the original offer price of $7.25 indicates that the market is assuming that this merger will not succeed in its current form. ADG has once again moved the special meeting of shareholders to approve the Chemring offer to June 1, 2010 after Chemring indicated it needs more tim e to complete its review of ADG.
The spread in the acquisition of WuXi PharmaTech (WX) by Charles River Labs (CRL) also appeared to increase to 17.4% on no particular news. However the deal of $11.25 in cash plus $10 in Charles River stock was subject to a collar described in the merger announcement as follows:
If the Charles River Average Price is equal to or greater than $43.1726, then the exchange ratio will be fixed at 0.2316, and if the Charles River Average Price is equal to or less than $37.1486, then the exchange ratio will be fixed at 0.2692.
Since the deal has breached the low end of the collar, the total deal price dropped to $19.44 and the spread is only 7.4% now.
The six new deals announced include the acquisition of inVenitv Health (VTIV) by Thomas H. Lee Partners for $26.00 per share in cash, the acquisition of Interactive Data Corporation (IDC) by Investment firms Silver Lake and Warburg Pincus for $33.86 per share in cash, the acquisition of Stanley (SXE) by the CGI Group for $37.50 per share in cash, the acquisition of SenoRx (SENO) by Bard for $11.00 per share in cash, the acquisition of HealthTronics (HTRN) by Endo Pharmaceuticals for $4.85 per share in cash and the acquisition of Continental Airlines (CAL) in an all stock merger with United (UAUA) in which Continental shareholders will receive 1.05 shares of United common stock for each Continental common share they own.
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