Merger Arbitrage Mondays - October 29, 2018

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Includes: ARII, CAG, D, EGL, EHIC, ENLC, ENLK, ESND, FNF, GNW, HBK, IBM, IVTY, JTPY, KANG, KLAC, NCR, NSU, ORBK, ORRF, P, PERY, PF, RHT, RSYS, S, SAIC, SCG, SHPG, SIRI, STC, SVU, SYK, TKPYY, TMUS, UNFI
by: Asif Suria

Summary

Merger activity decreased last week with five new deals announced.

The acquisition of Red Hat by IBM for $34 billion, or $190 per share, in cash.

Pandora announced the completion of the “go-shop” process under the merger agreement with Sirius XM Holdings.

Merger activity decreased last week with five new deals announced and four pending deals closing. We saw one of the largest acquisitions in the software industry with IBM paying a huge premium to acquire Red Hat. We also saw yet another Master Limited Partnership (MLP) merge into its General Partner to simplify its corporate structure.

Deal Statistics:

Total Number of Deals Closed in 2018 135
Total Number of Deals Not Completed in 2018 14
Total Number of Pending Deals
Cash Deals 43
Stock Deals 28
Stock & Cash Deals 14
Special Conditions 5
Total Number of Pending Deals 90
Total Deal Size $1.28 trillion

New Deals:

  1. The acquisition of JetPay Corporation (NASDAQ:JTPY) by NCR Corporation (NYSE:NCR) for $184 million, or $5.05 per share, in cash.
  2. The acquisition of American Railcar Industries (NASDAQ:ARII) by a wholly-owned subsidiary of ITE Rail Fund for $1.75 billion, or $70.00 per share, in cash.
  3. The acquisition of EnLink Midstream Partners (NYSE:ENLK) by EnLink Midstream (NYSE:ENLC) for $10.3 billion in an all-stock deal. Under the terms of the agreement, ENLK common unitholders will be entitled to receive 1.15 units of ENLC per ENLK unit owned.
  4. The acquisition of Hamilton Bancorp (NASDAQ:HBK) by Orrstown Financial Services (NASDAQ:ORRF) for $58.5 million in a cash plus stock deal. Under the terms of the agreement, Hamilton shareholders will receive 0.54 shares of Orrstown common stock and $4.10 per share in cash for each share of Hamilton common stock owned by them. The cash consideration is subject to reduction based on potential losses, write-downs, or reserves related to certain identified loans.
  5. The acquisition of Red Hat (NYSE:RHT) by IBM (NYSE:IBM) for $34 billion, or $190 per share, in cash.

Deal Updates:

  1. On October 23, 2018, Science Applications International Corporation (NYSE:SAIC) announced that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended with respect to the proposed acquisition of Engility Holdings (NYSE:EGL) by SAIC, has expired.
  2. On October 23, 2018, Staples and Essendant (NASDAQ:ESND) announced that, pursuant to the Merger Agreement, affiliates of Staples, have extended the expiration time of the previously announced tender offer for all outstanding shares of Essendant's common stock to November 5, 2018.
  3. On October 24, 2018, Pandora (NYSE:P) announced the completion of the “go-shop” process under the merger agreement with Sirius XM Holdings (NASDAQ:SIRI).
  4. On October 24, 2018, Nevsun Resources (NYSEMKT:NSU) announced that it has been advised by Zijin Mining Group that Zijin has received one of the three required regulatory approvals from the People’s Republic of China and has received Canadian Competition Act clearance for Zijin’s proposed friendly takeover bid of Nevsun.
  5. On October 26, 2018, The Delaware Department of Insurance (DDI) announced it has scheduled a public hearing on November 28, 2018 on the proposed acquisition of control of Delaware-domiciled Genworth Life Insurance Company by entities affiliated with China Oceanwide Holdings Group in connection with the merger of Oceanwide and Genworth Financial (NYSE:GNW).

Closed Deals:

  1. The acquisition of SuperValu (NYSE:SVU) by United Natural Foods (NASDAQ:UNFI) on October 22, 2018. It took 88 days for this deal to be completed.
  2. The acquisition of Perry Ellis International (NASDAQ:PERY) by George Feldenkreis, Perry Ellis’ founder, on October 22, 2018. It took 129 days for this deal to be completed.
  3. The acquisition of Invuity (NASDAQ:IVTY) by Stryker Corporation (NYSE:SYK) on October 23, 2018. It took 42 days for this deal to be completed.
  4. The acquisition of Pinnacle Foods (NYSE:PF) by ConAgra Brands (NYSE:CAG) on October 26, 2018. It took 121 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
RHT 10/28/2018 IBM $190.00 $116.68 12/31/2019 62.84% 53.46%
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $3.61 12/01/2018 50.42% 541.23%
SCG 01/03/2018 Dominion Energy, Inc. (NYSE:D) $47.95 $36.57 12/31/2018 31.11% 177.43%
KANG 03/26/2018 IK Healthcare Investment Limited (N/A) $20.60 $16.56 10/31/2018 24.40% 2968.20%
EHIC 04/06/2018 Teamsport Parent Limited (N/A) $13.50 $11.65 12/31/2018 15.88% 90.56%
SHPG 05/08/2018 Takeda Pharmaceutical Company Limited (OTCPK:TKPYY) $194.74 $169.25 06/30/2019 15.06% 22.44%
ORBK 03/19/2018 KLA-Tencor Corporation (NASDAQ:KLAC) $60.66 $52.79 12/31/2018 14.91% 85.05%
S 04/29/2018 T-Mobile US, Inc. (NASDAQ:TMUS) $6.68 $5.84 06/30/2019 14.34% 21.37%
STC 03/16/2018 Fidelity National Financial, Inc. (NYSE:FNF) $45.77 $40.59 06/30/2019 12.75% 19.00%
RSYS 07/02/2018 Reliance Industries Limited (N/A) $1.72 $1.53 12/31/2018 12.42% 70.82%

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Disclosure: I am/we are long TWLO, COL, P, 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.

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