3 Short Term Arbitrage Opportunities

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Includes: APOL, CVT, GWB, HFFC
by: ArbPoker

Summary

Apollo Education deal might be messy, but there is no reason to hold on to the stock and vote no to the deal.

Cvent Inc. is simple cash offer from a private equity firm, board of directors unanimously approved of deal.

Great Western Bancorp's acquisition of HF Financial Corp. has been approved by shareholders and closes in less than one month.

There are some simple opportunities to make relatively safe, high probability short term investments here. Below I will summarize three deals on the menu today. The intent of this article is not to dissect each deal, but bring to your attention deals which have already received approval from shareholders and boards of directors, and have a high probability of closing without major incident.

First, I'd like to illustrate the acquisition of Cvent Inc. (NYSE:CVT) by well capitalized private equity firm Vista Partners. The offer is $36.00 per share in cash, at the time of this writing CVT trades at $35.30 and the deal presents a spread of 1.983%. The deal is expected to close in Q3 2016 and would present an annualized return around 10% depending on when exactly in Q3 the deal closes. The deal has been approved unanimously by the board and looks as if to close without incident.

Great Western Bancorp (NYSE:GWB) is acquiring HF Financial Corp. (NASDAQ:HFFC). The deal has been approved by shareholders and is awaiting closing. The deal offers HFFC shareholders the choice between $19.50 per share in cash or 0.65 GWB shares. Currently the offer of GWB shares is worth $19.22 per share of HFFC, with GWB's share price currently at $29.64. Taking the cash offer, this leaves a spread of $0.26 at the time of this writing which is a spread of 1.35%. The deal is expected to close May 13, 2016. This presents a good annualized yield for a ~3 week investment.

Finally we have Apollo Education (NASDAQ:APOL) being taken private by a consortium of private equity firms, including its namesake Apollo Global Management. This deal is of a different flavor than the previous two, it requires some decision making and risk assessments. The spread on this deal is huge, indicating perceived riskiness in the deal's completion. The offer is for $9.50 per APOL share in cash, the shares currently trade at $7.18. There is a 32.31% spread. There are two proxy firms offering conflicting opinions. Institutional Shareholder Services Inc., or ISS, is recommending shareholders vote against the deal on the grounds that the valuation offered is far too low. The other proxy advisor, Glass, Lewis & Co. recommends that shareholders vote in favor of the deal. The company's management and board is in favor of the deal and had previously been shopping the company and looking at strategic alternatives.

I see this as an opportunity because, in my opinion, the business of for-profit education is almost entirely a scam. The "education" and resources offered to students is laughable, and the amount of students who experience success and career advancement is slim to none. The FTC brought enforcement action against DeVry University for using intentionally deceptive advertising, the article in its entirety can be found here.

The FTC is also investigating Apollo Education.

Excerpt from APOL's most recent 10-K regarding the deal:

Apollo Education Group, Inc. is one of the world's largest private education providers, serving students since 1973. We offer undergraduate, graduate, certificate and nondegree educational programs and services, online and on-campus, principally to working learners in the U.S. and abroad. Refer to Note 17, Segment Reporting, for further information regarding our institutions and operating segments. Our fiscal year is from September 1 to August 31.

On February 7, 2016, we entered into a merger agreement with AP VIII Queso Holdings, L.P., an affiliate of Apollo Management VIII, L.P., which is a fund managed by an affiliate of Apollo Global Management, LLC, none of which is, or has ever been, affiliated with us. At the effective time of the merger, which is expected to be completed by the end of calendar year 2016, each share of our issued and outstanding Class A and Class B common stock will be converted into the right to receive $9.50 per share in cash.

Consummation of the merger is subject to customary and other conditions, including:

(I) the approval of the holders of at least a majority of our outstanding Class A and Class B common stock entitled to vote thereon, each voting separately as a class;

(ii) the receipt of consents or approvals from certain federal, state and foreign educational governing bodies, including the Higher Learning Commission; and

(III) the absence of certain conditions or restrictions in the response of the U.S. Department of Education to the pre-acquisition review application filed by University of Phoenix.

In addition, consummation of the merger is subject to our satisfying certain minimum operating metrics, measured as of the first or second month end preceding the closing date, depending on the day of the month on which closing occurs, as follows:

Our aggregate cash, cash equivalents and marketable securities must not be less than the specified amount for the applicable month end;
(ii) University of Phoenix fiscal year-to-date new degreed enrollments as of the applicable month end must not have declined by more than certain forecasted levels (which are derived from the projections we prepared in December 2015 in connection with the merger, which we refer to as the December forecast);
University of Phoenix trailing twelve month net revenue as of the applicable month end shall not have declined by more than certain forecasted levels (which are derived from our December forecast); and
(iv) Our consolidated trailing twelve months adjusted earnings before interest, taxes, depreciation and amortization as of the applicable month end shall not have declined by more than certain forecasted levels (which are derived from our December forecast).

My argument in favor of the deal is simple, the company's business model is terrible. It's based on false information and won't last forever. I would never want to own the stock, and I am extremely bearish on the company's long term prospects. This is why shareholders should cash out. Take the money and walk while you still can. Holding out for a better deal seems like being in denial of the inevitable to me. The shareholders who are against the deal are funds that have huge losses in the stock and are holding out to try and save face with their investors and management. April 28, 2016 is the day of the shareholder vote on whether or not to sell the company. From today until then there is the potential for a huge gain or a huge loss if the vote culminates in a "No". If you are a risk averse type of investor, I'd recommend staying away from this deal. If you can handle some risk and size your position appropriately so that you don't get blown up if this goes south, I say go for it.

Disclosure: I am/we are long CVT, HFFC, APOL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.