Spread: 5%. Expected closing: March 29th 2019
A large cap U.S. merger between Ontario’s largest electricity transmission and distribution provider Hydro One and electricity and a natural gas distributor Avista. The acquisition was announced in July 2017 and since then has acquired most of the approvals, including shareholder, federal and a few of the states, so only blessings from Washington, Idaho and Oregon Utility commissions are left. Collecting the approvals throughout the year was more or less a smooth process, however due to public and political complaints about rising utility rates and huge compensations of Hydro One’s board, Ontario’s newly elected Premier Doug Ford, has kept his campaign promise and made Hydro’s CEO and the board resign, therefore raising certain concerns of regulators about the further situation of the merger. Avista was quick to reaffirm that the deal is still on, however regulators have decided to postpone the deal until December. There were worries about whether Ontario's Premier will meddle with Hydro again and could he be a threat to the merger, however it seems now, that his only issues were high rates and extremely large board compensations. In my opinion there should be no problem with the regulators as well, unless the new board (assigned in mid August) would give a ground for disapproval, however so far everything seems to go well. Avista has also extended the end date from September 30 to March 29th due to the previous reasons. Merger consideration: $53. Most of the time until political issues Avista was trading at about $52/share level, but recently the spread has given a sweeter opportunity for the arb players.
Spread: 5%. Expected closing: H2 2018
Oclaro, a leader in optical products and modules is being acquired by a major provider of photonics products for optical networking and lasers. The deal has been announced in March 2018 and since then has gathered shareholder approval as well as other important blessings such as FTC and HSR. The main concern is Chinese regulatory approval and as Oclaro has a significant exposure to China’s market (30% of OCLR revenues are from China), the current tension from trade war with U.S. reflects in the spread. In August Lumentum said that in regards to China’s approval they are still in Phase 1 and it is unknown when the consent might be given. Another concern is with the U.S. sanctions to Chinese telecommunications company ZTE, which were imposed in April, then lifted in June and now can be turned on again. Apparently about $50m or 9% of the revenues of OCLR were from ZTE in 2017 and due to the sanctions the revenues were hurt in 2018 and can be damaged even more if sanctions were renewed. Merger consideration: $5.60 in cash and 0.0636 shares of Lumentum.
Special committee approved the buyer’s request and iKang Healthcare (KANG) has entered into a 2nd amendment, that delays the date from September 26th to October 31st after which either party can terminate the deal. Since the company has announced the strategic re-evaluation the spread has widened from 5% to current 20%.
Some interesting lower spread deals:
Spread: 2%. Expected closing: end of 2018
A deal in Aussie’s media space between Nine Entertainment, second biggest free-to-air TV network and Fairfax Media, second biggest newspaper publisher to secure profitability in the future of digital media. Regulatory consent is yet to be received and although it is expected that ACCC (Australian Competition and Consumer Commission) will approve the deal, there has been some opposition to the merger from MEAA (The Media Entertainment and Arts Alliance) saying that the “takeover reduces media diversity”. MEAA has also asked ACCC to take a more thorough review than the proposed 12-weeks. The deal has yet to be approved by both companies’ shareholders and both meetings are scheduled for November, moreover the second largest NEC shareholder (8%) has already expressed a support for the deal. Merger consideration: A$0.025 + 0.3627 Nine shares for each Fairfax share held.
Spread: 1%. Expected closing: Q4 2018 - Q1 2019
Frutarom, an Israeli-based company that specializes in the production and distribution of extracts for flavor and fragrance to be acquired by IFF, a American corporation producing flavors and fragrances and cosmetic actives. The deal was considered pricey and was not well received by IFF shareholders at first (IFF down 12%), however top IFF shareholder, Winder Investment, seems to think that the deal is positive, since it has speeded up IFF shares purchase recently and currently owns almost 18%. The merger was strongly approved by FRUT shareholders and is still subject to regulatory consent. Merger consideration: $71.19 in cash and 0.249 of IFF common stock.
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