Merger Arbitrage Mondays - September 10, 2018

by: Asif Suria
Summary

Merger activity increased last week.

LaSalle Hotel Properties (LHO) terminated its deal with Blackstone and agreed to be acquired by Pebblebrook Hotel Trust (PEB).

iKang Healthcare Group (KANG) announced that IK Healthcare Investment Limited is re-evaluating the commercial viability of the merger.

Merger activity increased last week with four new deals announced and three pending deals closing. You can find all the active deals listed below in our Merger Arbitrage Tool that automatically updates itself during market hours.

There were two new deals announced in the Deals in the Works section.

Deal Statistics:

Total Number of Deals Closed in 2018 107
Total Number of Deals Not Completed in 2018 13
Total Number of Pending Deals
Cash Deals 43
Stock Deals 17
Stock & Cash Deals 16
Special Conditions 3
Total Number of Pending Deals 79
Total Deal Size $1.13 trillion

New Deals:

  1. The acquisition of Ocean Rig UDW (ORIG) by Transocean (RIG) for $2.7 billion in a cash plus stock deal. Under the terms of the agreement, Ocean Rig UDW shareholders will receive 1.6128 newly issued shares of Transocean plus $12.75 in cash for each share of Ocean Rig’s common stock, for a total implied value of $32.28 per Ocean Rig share, based on the closing price on August 31, 2018. We added ORIG as a potential deal to the Deals in the Works section on December 20, 2017 and the price after the news of the potential deal came out was $26.06.
  2. The acquisition of Nevsun Resources (NSU) by Zijin Mining Group for C$1.86 billion (US$1.41 billion) or C$6.00 per share in cash. We added NSU as a potential deal to the Deals in the Works section on July 16, 2018 and the price after the news of the potential deal came out was $3.29.
  3. The acquisition of LaSalle Hotel Properties (LHO) by Pebblebrook Hotel Trust (PEB) for $5.2 billion in a cash or stock deal. Under the terms of the agreement, each LaSalle shareholder will have the option to elect to receive for each LaSalle common share owned either a) a fixed amount of $37.80 in cash or b) a fixed exchange ratio of 0.92 Pebblebrook common share. A maximum of 30% of outstanding LaSalle common shares may be exchanged for cash, subject to pro rata cut backs. We added LHO as a potential deal to the Deals in the Works section on March 28, 2018 and the price after the news of the potential deal came out was $27.95. For purposes of the Merger Arbitrage Tool, we are going to treat this as an all stock deal.
  4. The acquisition of WSI Industries (WSCI) by Polaris Industries (PII) for $23.9 million or $7.00 per share in cash.

Deal Updates:

  1. On September 4, 2018, the proposed combination of Dominion Energy (D) and SCANA Corporation (SCG) achieved another significant milestone. The U.S. Nuclear Regulatory Commission (NRC) has approved the indirect transfer of the Operating License for V.C. Summer Unit 1 and of the Combined Licenses (COLs) for V.C. Summer Units 2 and 3 from SCANA's wholly owned subsidiary, South Carolina Electric & Gas (SCE&G), to Dominion Energy.
  2. On September 6, 2018, LaSalle Hotel Properties (LHO) terminated its deal with Blackstone and agreed to be acquired by Pebblebrook Hotel Trust (PEB).
  3. September 5, 2018: According to the Wall Street Journal, Justice Department antitrust enforcers are preparing to give the green light to two deals in the health-care industry, CVS HealtH’s (CVS) planned acquisition of health insurer Aetna (AET) and Cigna’s (CI) planned purchase of Express Scripts Holding (ESRX).
  4. On September 5, 2018, Radisys Corporation (RSYS) announced that its shareholders have voted to approve proposals related to the previously announced merger agreement with Reliance Industries.
  5. On September 5, 2018, Stewart Information Services Corporation (STC) announced that a majority of the outstanding shares of Stewart common stock voted to approve the Agreement and Plan of Merger, with Fidelity National Financial (FNF).
  6. On September 6, 2018, Xerium Technologies (XRM) announced that the Company’s stockholders voted to approve the previously announced merger agreement with Andritz AG.
  7. On September 7, 2018, iKang Healthcare Group (KANG) announced that IK Healthcare Investment Limited is re-evaluating the commercial viability of the merger, and has requested an extension of the termination date under the Merger Agreement from September 26, 2018 to October 31, 2018.

Closed Deals:

  1. The acquisition of Charter Financial Corporation (CHFN) by CenterState Bank Corporation (CSFL) on September 4, 2018. It took 133 days for this deal to be completed.
  2. The acquisition of ILG, Inc. (ILG) by Marriott Vacations Worldwide Corporation (VAC) on September 4, 2018. It took 127 days for this deal to be completed.
  3. The acquisition of MTGE Investment (MTGE) by Annaly Capital Management (NLY) on September 7, 2018. It took 128 days for this deal to be completed.

Top 10 deals with largest spreads:

Symbol Announced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
Profit Annualized
Profit
AKRX 04/24/2017 Fresenius Kabi (N/A) $34.00 $14.79 09/30/2018 129.89% 2257.53%
SCG 01/03/2018 Dominion Energy, Inc. (D) $47.81 $36.6 12/31/2018 30.62% 98.90%
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $4.53 12/01/2018 19.87% 87.37%
SHPG 05/08/2018 Takeda Pharmaceutical Company Limited (TKPYY) $194.74 $166.29 06/30/2019 17.11% 21.24%
EHIC 04/06/2018 Teamsport Parent Limited (N/A) $13.50 $11.83 09/30/2018 14.12% 245.36%
STC 03/16/2018 Fidelity National Financial, Inc. (FNF) $50.72 $45.06 06/30/2019 12.56% 15.59%
KANG 03/26/2018 IK Healthcare Investment Limited (N/A) $20.60 $18.37 10/31/2018 12.14% 85.21%
S 04/29/2018 T-Mobile US, Inc. (TMUS) $6.60 $5.95 06/30/2019 10.99% 13.64%
RSYS 07/02/2018 Reliance Industries Limited (N/A) $1.72 $1.57 12/31/2018 9.55% 30.86%
ORBK 03/19/2018 KLA-Tencor Corporation (KLAC) $64.91 $61.05 12/31/2018 6.31% 20.40%

Disclaimer: I hold positions in Radisys (RSYS) and magicJack VocalTec (CALL). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.

Disclosure: I am/we are long RSYS, CALL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.