It is not a bad idea to see what the public merger arbitrage funds are doing each quarter. What they aren't buying can be just as important as what they are. The four funds I track are The Arbitrage Fund, The Gabelli ABC Fund, The Merger Fund and Gabelli Enterprise Mergers & Acquisitions Fund. Here are the top 10 holdings as of December 31, 2016 for each of the funds.
The Arbitrage Fund
1. St. Jude Medical, Inc. (NYSE:STJ) (deal closed)
2. CST Brands (NYSE:CST)
3. Endurance Specialty Holdings (NYSE:ENH)
4. Spectra Energy Corp. (NYSE:SE)
5. Linear Technology Corporation (NASDAQ:LLTC)
6. WhiteWave Foods (NYSE:WWAV)
7. Team Heath (deal closed)
8. The Valspar Corp. (NYSE:VAL)
9. Chemtura (NYSE:CHMT)
10. ExamWorks (NYSE:EXAM) (deal closed)
Gabelli ABC Fund
1. Harman International (NYSE:HAR)
2. St. Jude Medical, Inc. (deal closed)
3. The Valspar Corp.
4. Westar Energy, Inc. (NYSE:WR)
5. Columbia Pipeline Partners (NYSE:CPPL)
6. WhiteWave Foods Co.
7. Empire District Electric (NYSE:EDE)
8. Clarcor (NYSE:CLC)
9. CST Brands
10. Endurance Specialty Holdings
The Merger Fund
1. Yahoo (NASDAQ:YHOO)
2. Jarden (NYSE:JAH) (deal closed)
3. St. Jude (deal closed)
4. Harman International
5. American Capital (deal closed)
6. Syngenta (NYSE:SYT)
7. NXP Semiconductors (NASDAQ:NXPI)
8. Sky PLC (OTCQX:SKYAY)
9. Endurance Specialty Holdings
10. Linear Technology Corporation
Gabelli Enterprise Mergers & Acquisitions Fund
1. Westar Energy, Inc.
2. Harman International
3. The Valspar Corp.
4. WhiteWave Foods Co
5. Telenet Group Holding (OTCPK:TLGHY)
6. Myers Industries, Inc. (NYSE:MYE)
7. Endurance Specialty holdings
8. Columbia Pipeline Partners
9. US Cellular Corp. (NYSE:USM)
10. Rite Aid (NYSE:RAD)
Valspar is in three of the four funds and top three in two of them. Valspar is in the process of being acquired by Sherwin-Williams (NYSE:SHW) for $113 per share in cash. Under the terms of the merger agreement, if divestitures are required of businesses totaling more than $650 million of Valspar's 2015 revenues, the transaction price would be adjusted to $105 per Valspar share.
On January 26, Sherwin-Williams issued this press release:
We now expect a divestiture will be required to gain approval from the FTC to complete the acquisition of Valspar. We are moving forward on a divestiture that we believe will allow us to gain approval from the FTC. The expected divestiture has revenues below the $650 million threshold, and we expect to negotiate the divestiture and complete the Valspar transaction at $113 per share within 90 days.
What about three companies that have definitive deals and huge spreads - Alere (NYSE:ALR), Genworth Financial (NYSE:GNW) and Cabela's (NYSE:CAB)? None of the three show up on any of the four funds' top 10. All three may have the distinction of joining Rite Aid in what may be a 2017 trend: the year of the price cut.
Alere has long been rumored to wind up taking a significant price cut from Abbott Labs (NYSE:ABT) if their deal can be salvaged. Genworth's $5.43 cash deal with China Oceanwide (OTC:HHRBF) could be cut to $3.43 according to a Wells Fargo analyst, due to weakening fundamentals. And Cabela's, while nothing has been said publicly about a price cut, the stock sure is trading like it.
Disclosure: I am/we are long VAL, GNW, ALR, NXPI, WR, CAB, RAD, HAR, SYT, WWAV.
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.
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