Risk Arbitrage Today: A Dozen Recent Deals

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Includes: APO, AVA, BWA, DDC, FUEL, MORE, MRVC, MYCC, NCIT, NEFF, QRTEA, RATE, RDFVF, SEV, SPA, UEHPY
by: Special Situations and Arbs

Summary

12 recent deals in July.

All 12 deals trading at a spread of 2% or less.

Merger Arb Poll of the Week.

Last Week's Merger Arbitrage Poll Question Results

Here are the results of the last merger arbitrage poll. We asked the question, Did you know about the QIWI tender offer before seeing my article?

Almost 60% of those who responded didn't know about the tender. Actually the would be tender. Thank you for responding.

Choices Totals
YES 34
NO 50

This week's Merger Arbitrage Poll Question

Which M&A stock do you want me to write about? It can be a stock in a definitive deal or one that is rumored to be bought. Whatever stock is asked for the most I will write an article about.

Which M&A stock do you want me to write about? It can be a stock i na definitive deal or one that is rumored to be bought. | SurveyPlanet">

There hasn't been a headline deal since Amazon (AMZN) agreed to buy Whole Foods (WFM) last month. And since it is the summer, some may have missed the recent smaller deals. So here is a short recap of the July deals and the very modest spreads they are trading at.

HSN

Liberty Interactive (QVCA) is buying HSN (HSNI) in a stock deal worth about $2.1 billion at the time of announcement. HSN shareholders will receive 1.65 shares of QVCA. Liberty Interactive currently owns 38.2% of HSN and, under the definitive agreement will acquire the remaining 61.8% stake.

The acquisition of is expected to be completed by Q4 and is subject to approval from the Federal Communications Commission, HSR and approval by a majority of the HSN shareholders.

The addition of HSN will enhance QVC’s position as the leading global video eCommerce retailer. Every year they together produce over 55,000 hours of shoppable video content- Greg Maffei, Liberty Interactive President and CEO.

Two years ago HSN was trading above $75 per share.

The spread is .15% and the IRR is .3%.

Chart HSNI data by YCharts

Monogram Residential Trust

Monogram Residential Trust (MORE) is being bought by Greystar Real Estate Partners for $12 per share in a cash deal. The deal is valued at approximaltey $3B inclusing Monogram's debt.

The transaction is expected to close this year and is subject to approval by Monogram's shareholders. Note:Monogram will not pay any dividends through the close of the transaction. The spread is .5% and the IRR is 1.4%.

Chart MORE data by YCharts

MRV Communications

MRV Communications (MRVC) announced over the weekend that it is being acquired by ADVA Optical Networking for $10 per share in cash,which works out to $69 million. The deal is structured as a tender offer. MRV is not optionable. The spread is .5% and assuming a 3Q close, the IRR is 2.6%.

Chart MRVC data by YCharts

NCI

NCI (NCIT) is being bought by H.I.G. Capital for $283M, or $20 per share. The transaction is an all-cash deal and is structured as a tender offer. The parties currently expect the transaction to close in Q3. There is a tiny .2% spread in the deal and just a 1.3% IRR.

Chart NCIT data by YCharts

Bankrate

Bankrate (RATE) has entered into a definitive agreement to be acquired by Red Ventures (OTC:RDFVF) for $14 per share in cash. The deal values Bankrate at an enterprise value of approximately $1.4 billion. The transaction is expected to close by the end of the year and is subject to shareholder and regulatory approval. The spread is 1.1% and the IRR is 2.5%.

Chart RATE data by YCharts

Sparton Corporation

Ultra Electronics Holdings (OTCPK:UEHPY) is buying Sparton Corporation (SPA) for $23.50 per share in cash.

The transaction is subject to regulatory clearances and approval of both Sparton’s and Ultra’s shareholders, and is expected to close by the end of this year. There is a 1.4% spread in the deal and the IRR is 3.1%.

Chart SPA data by YCharts

ClubCorp Holdings

ClubCorp (MYCC) is selling itself and Apollo Global Management (APO) is the buyer. Apollo is paying $17.12 per share in cash or approximately $1.1 billion for the golf and country club operator.

The transaction is subject to approval by ClubCorp shareholders, and is expected to close in Q4. Assuming a mid November close, the deal spread is 1% and the IRR is 3.4%.

Chart MYCC data by YCharts

Neff Corporation

There was a deal in the equipment rental services area with H&E Equipment Services agreeing to acquire Neff (NEFF) for $21.07 per share in cash, representing a total enterprise value of about $1.2 billion. One note: The per share merger consideration payable to Neff stockholders is subject to certain downward adjustments, not to exceed $0.44 per share.

Private investment funds managed by Wayzata Investment Partners holding approximately 62.7% of the outstanding common shares of Neff have executed a written consent to approve the transaction, thereby providing the required stockholder approval for the transaction.

The merger agreement includes a “go-shop” period which runs through August 20. The transaction is expected to close in the late third quarter or early fourth quarter. There is .3% spread and a 1.2% IRR.

Chart NEFF data by YCharts

Sevcon

Sevcon (SEV) signed a definitive deal to be acquired by BorgWarner (BWA) in a deal valued at approximately $200 million, including debt. That works out $22 per share in cash.

The transaction is expected to close in the fourth quarter and is contingent on the approval of Sevcon’s stockholders. Currently there is a spread of 1.1% and a IRR of 2.5%.

Chart
SEV data by YCharts

Dominion Diamond Corporation

After offering $13.50 per share for Canadian mining company Dominion Diamond (DDC) four months ago, The Washington Companies inked a deal to buy DDC for $14.25/share in an all-cash deal.

The closing of the Arrangement is subject to the approval of at least two-thirds of the votes cast by Dominion shareholders. In addition, the Company must have a minimum cash balance of $150 million if closing is on or before November 30 or $200 million if closing is after November 30. Note that Dominion will suspend its dividend. The transaction is expected to close in the fourth quarter. The spread is 1.3% and the IRR is 2.9%.

Chart DDC data by YCharts

Rocket Fuel

Rocket Fuel's (FUEL) shareholders were hoping for some rocket fuel in the stock price when they learned the company was getting bought. But instead Rocket Fuel accepted a price that was less than where the shares were trading for the day before.

Private equity firm Vector Capital is the buyer and the price is $2.60 per share in cash or $125.5 million. The company’s stock traded as high as $66 back in 2013.

Completion of the acquisition is subject to customary closing conditions, including a majority of the outstanding shares of Rocket Fuel's common stock having been tendered in the tender offer and clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The parties expect the transaction to be completed in third quarter.

The deal includes a 30-day “go-shop” period, in which Rocket Fuel will solicit and potentially enter into alternative proposals from third parties.

That is likely why the stock is trading above the deal price.

Chart
FUEL data by YCharts

Avista Corporation

A cross border deal in the gas and electric space as Canada's Hydro One is purchasing Avista (AVA) for $53 per share for cash. The combined entity will serve more than two million retail and industrial customers and hold assets throughout North America including Ontario, Washington, Oregon, Idaho, Montana and Alaska.

The transaction is expected to close in the second half of 2018, subject to Avista shareholder approval and a boatload of regulatory and government approvals and clearances, including approval by the Washington Utilities and Transportation Commission, the Public Utility Commission of Oregon, the Idaho Public Utilities Commission, the Regulatory Commission of Alaska, the Public Service Commission of the State of Montana, the U.S. Federal Energy Regulatory Commission, clearance by the Committee on Foreign Investment in the United States and compliance with applicable requirements under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the satisfaction of customary closing conditions.

The spread is 1.4% and the IRR is even lower since the merger looks like it will take at least a year to complete.

Chart AVA Price data by YCharts


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Disclaimer: The above article is intended to provide my opinion to interested readers. To the best of my knowledge, the information presented above is factual but its accuracy cannot be guaranteed. The article should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect my judgment as of the date of publication and are subject to change. Readers are strongly encouraged to complete their own due diligence on any stock or option mentioned in this article before investing. I have no knowledge of individual investor circumstances, goals, portfolio concentration or diversification. I am not a licensed investment adviser. The information contained in this article is provided for general informational purposes and is not a substitute for obtaining professional advice from a qualified person, firm or corporation. Merger arbitrage is a risky strategy because there is significant downside in the event of most deal rejections.

Disclosure: I am/we are long WFM, QIWI, FUEL.

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.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.