M&A Updates: Green Light For CVS/Aetna

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Includes: AET, CVS, FMBI, GOV, MNI, NSFC, SIR, TPCO
by: Special Situation Investor
Summary

CVS/Aetna deal approved DOJ.

Another merger in Canada's Oil & Gas Industry.

Tribune Publishing might get acquired by McClatchy.

I would like to believe that GOV/SIR deal will go through, especially as it is orchestrated by the same RMR Group (parent of both companies). However, I do not see how it can be approved by GOV shareholders, given the unfair dividend cut.

The situation going on between Tribune Publishing and the potential buyers is also very interesting. It seems the odds are on McClatchy's side now. The spread is wide and keeps increasing, although the rumored price does not sound very legitimate.

As expected DOJ has approved CVS (CVS)/Aetna (AET) deal with conditions to divest some of the Medicare Part D business. It is already known that those assets are going to be sold to WellCare. Interestingly, the spread has not changed much upon the news. The merger has already got the approval from 5 of the states and is waiting for 2 more from Connecticut and New York. Connecticut held a hearing on the 4th of October and is expected to decide in early November. New York hearing is planned on 18th of October and might present a bigger challenge as a few weeks ago it has raised some serious concerns about the deal in a letter to Connecticut regulators. Closing is expected in the early Q4.

Northern States Financial (NSFC) shareholders have approved the merger with First Midwest Bancorp (FMBI). The deal should close smoothly in Q4.

International Petroleum Corporation (IPCO) (OTC:IPCFF) - BlackPearl Resources (PXX) (OTCPK:BLKPF) Acquisition

Spread: 4%. Expected closing: December 2018

A merger in Canadian oil and gas industry in which Blackpearl is going to be acquired by International Petroleum for 0.22 IPCO per PXX share. This acquisition, which is expected to double IPCO’s daily net production is subject to both companies' shareholder (two thirds for Blackpearl and a majority of International Petroleum) approvals plus customary and regulatory approvals. I don’t see any problems with the shareholder approvals as both companies are controlled by the same Lundin Group and from PXX side the transaction is already backed by the shareholders together holding about 40% (including entities related to Lundin family and the largest shareholder Burgundy Assets), while from the IPCO side shareholders holding about 34% have agreed to vote the merger. Meetings are planned for December.

As I have recently mentioned, another very similar deal between another Canadian oil & gas companies might happen as Husky Energy has made a hostile offer for Meg Energy.

Government Properties Income Trust (GOV) - Select Income REIT (SIR) Merger

Spread: 8%. Expected closing: Late 2018 or early 2019

This is a deal between two REITs managed by the same RMR Group. GOV was a largest shareholder of SIR but recently sold its $24.9m stake satisfying one of the deal’s conditions. Merger consideration is: 1.04 GOV/share. The deal is conditioned on both companies' shareholder approvals as well as SIR distributing its stake in ILPT (another REIT) for SIR shareholders before the closing of the transaction in form of special dividend. So, all in all, SIR shareholders will receive 1.04 GOV + 0.502 ILPT per SIR share. ILPT borrow is 5%, which is not cheap and might partially explain the spread, nonetheless other more important thing is the dividend cut. The combined company expects to pay annual dividend from $0.5 to $0.6, while GOV currently pays $0.43 quarterly dividends, which sums up to $1.72 per year. This is a major 65% cut in the best case scenario, therefore it gives a serious reason for GOV’s shareholders to vote down this transaction.

Tribune Publishing (TPCO) (has changed the name from “Tronc” recently), a newspaper and media publishing company is choosing between two potential buyers: private investment company Donerail Group led by Will Wyatt and McClatchy (MNI) - a troubled and overleveled newspaper company. At first, it seemed that the second largest shareholder Patrick Soon Shiong (owns 25%) is backing Donerail Group. However, now, apparently, he has switched sides and is even injecting $150m into the deal to make TB more affordable for McClatchy. This situation is still only on a level of rumors. However, currently, a spread of 20% to the rumored price of $19-$20 seems appealing. Moreover, the downside seems to be only up to 10%.

Cybergy (CYBG) is acquiring Virgin Money (VM.L) (OTC:VRGDF) to create UK’s 6th largest bank. The spread is already closed as all the approvals were gathered except the sanctioning by the court (the hearing is expected at 12th of October), and if granted, the scheme will become effective since October 15th.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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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