Merger Arbitrage Mondays - January 7, 2018

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Includes: AVA, BMY, CADE, CELG, CLDR, CVON, D, EHIC, ESND, FCB, GBNK, GNBC, GNW, HDP, IBM, IBTX, ILMN, INUV, KLAC, MRT, OHI, ORBK, ORM, PAAS, PACB, RC, RHT, S, SCG, SIR, SNV, STBZ, TAHO, TMUS, UWN, VBTX
by: Asif Suria
Summary

Merger activity increased last week with two new deals announced.

The acquisition of Celgene Corporation by Bristol-Myers Squibb Company.

Hydro One Limited and Avista Corporation received a regulatory decision from the Idaho Public Utilities Commission, denying the proposed merger.

Merger activity increased last week with two new deals announced and nine pending deals closing.

Deal Statistics:

Total Number of Deals Closed in 2019 6
Total Number of Pending Deals
Cash Deals 41
Stock Deals 22
Stock & Cash Deals 15
Special Conditions 4
Total Number of Pending Deals 82
Total Deal Size $549.15 billion

New Deals:

  1. The acquisition of MedEquities Realty Trust (NYSE:MRT) by Omega Healthcare Investors (NYSE:OHI) for $600 million in a cash plus stock deal. Under the terms of the agreement, MedEquities stockholders will receive a fixed exchange ratio of 0.235 Omega common shares, plus $2.00 in cash for each share of MedEquities common stock held by them. We added MRT as a potential deal to the Deals in the Works section on August 15, 2018, and the price after the news of the potential deal came out was $10.33.
  2. The acquisition of Celgene Corporation (NASDAQ:CELG) by Bristol-Myers Squibb Company (NYSE:BMY) for $74 billion in a cash plus stock deal. Under the terms of the agreement, Celgene shareholders will receive 1.0 Bristol-Myers Squibb share and $50.00 in cash for each share of Celgene. Celgene shareholders will also receive one tradeable Contingent Value Right (CVR) for each share of Celgene, which will entitle the holder to receive a payment for the achievement of future regulatory milestones.

It was interesting to see that the spread for the Celgene deal was more than 18% on the day it was announced even without considering the CVR. On Friday, the spread narrowed to 14.12% in exuberant market conditions.

Celgene Spread Change History (Source: InsideArbitrage.com database)

Deal Updates:

  1. On January 2, 2019, Nevada Gold & Casinos (NYSEMKT:UWN) announced that effective December 31, 2018, Nevada Gold & Casinos LV, LLC, a wholly-owned subsidiary of the Company, completed the sale of substantially all of its assets related to Club Fortune Casino located in Henderson, Nevada, to Truckee Gaming.
  2. On January 3, 2019, Hydro One Limited and Avista Corporation (NYSE:AVA) received a regulatory decision from the Idaho Public Utilities Commission, denying the proposed merger of the two companies. The companies are disappointed in the Commission's decision, are reviewing the order in detail, and will determine the appropriate next steps.
  3. On January 3, 2019, 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 January 9, 2019. The parties expect the merger to close in early 2019.
  4. On January 4, 2019, Ready Capital Corporation (NYSE:RC) announced that it has set February 28, 2019, as the record date for the special meeting of its stockholders to consider and vote on a proposal to approve the previously announced definitive merger agreement with Owens Realty Mortgage (NYSEMKT:ORM).

Closed Deals:

  1. The acquisition of Select Income REIT (NYSE:SIR) by Government Properties Income Trust on December 31, 2018. It took 105 days for this deal to be completed.
  2. The acquisition of Randgold Resources Limited by Barrick Gold Corporation on December 31, 2018. It took 98 days for this deal to be completed.
  3. The acquisition of State Bank Financial Corporation (STBZ) by Cadence Bancorporation (NYSE:CADE) on December 31, 2018. It took 232 days for this deal to be completed.
  4. The acquisition of Green Bancorp (NASDAQ:GNBC) by Veritex Holdings (NASDAQ:VBTX) on January 1, 2019. It took 161 days for this deal to be completed.
  5. The acquisition of Guaranty Bancorp (NASDAQ:GBNK) by Independent Bank Group (NASDAQ:IBTX) on January 1, 2019. It took 224 days for this deal to be completed.
  6. The acquisition of SCANA Corporation (NYSE:SCG) by Dominion Energy (NYSE:D) on January 2, 2019. It took 364 days for this deal to be completed.
  7. The acquisition of FCB Financial Holdings (NYSE:FCB) by Synovus Financial (NYSE:SNV) on January 2, 2019. It took 162 days for this deal to be completed.
  8. The acquisition of Hortonworks (NASDAQ:HDP) by Cloudera (NYSE:CLDR) 0n January 3, 2019. It took 92 days for this deal to be completed.
  9. The acquisition of ConvergeOne Holdings (NASDAQ:CVON) by affiliates of CVC Fund VII on January 4, 2019. It took 59 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
INUV 11/05/2018 ConversionPoint Technologies, Inc. (N/A) $2.22 $1.09 03/31/2019 103.67% 450.47%
EHIC 04/06/2018 Teamsport Parent Limited (N/A) $13.50 $10.29 12/31/2018 31.20% -1897.72%
AVA 07/19/2017 Hydro One Limited (N/A) $53.00 $42.15 03/29/2019 25.74% 114.58%
CELG 01/03/2019 Bristol-Myers Squibb Company (BMY) $96.89 $84.9 09/30/2019 14.12% 19.31%
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $4.79 01/31/2019 13.36% 195.07%
S 04/29/2018 T-Mobile US, Inc. (NASDAQ:TMUS) $6.92 $6.21 06/30/2019 11.46% 23.91%
TAHO 11/14/2018 Pan American Silver Corp. (NASDAQ:PAAS) $4.10 $3.72 03/31/2019 10.22% 44.39%
PACB 11/01/2018 Illumina, Inc. (NASDAQ:ILMN) $8.00 $7.29 06/30/2019 9.74% 20.31%
ORBK 03/19/2018 KLA-Tencor Corporation (NASDAQ:KLAC) $61.69 $56.41 03/31/2019 9.35% 40.63%
RHT 10/28/2018 IBM (NYSE:IBM) $190.00 $173.99 12/31/2019 9.20% 9.36%

Disclaimer: I hold positions in Athenahealth (NASDAQ:ATHN), Finisar (NASDAQ:FNSR) and Pandora (NYSE:P). 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 ATHN, FNSR, P. 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.