Merger Arbitrage Mondays - Insider Purchase By A Director Of Mellanox Technologies

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Includes: APC, BIIB, BKS, CHFC, CLBK, DNBF, EE, EFII, LE, NITE, OXY, RTN, SHOS, SRG, SSFN, STBA, TCF, UTX
by: Asif Suria
Summary

Merger activity increased last week.

The acquisition of El Paso Electric Company by J.P. Morgan Investment Management.

Raytheon Company and United Technologies to combine in an all-stock merger of equals.

Merger activity increased last week with six new deals announced and one pending deal closing.

There was an interesting insider purchase at Mellanox Technologies (NASDAQ:MLNX) last week that we wrote about yesterday. Director Steve Sanghi acquired 20,000 shares of this semiconductor company, paying $110.54 per share for a total amount of $2.21 million. Nvidia (NASDAQ:NVDA) is in the process of acquiring Mellanox Technologies in an all cash deal valued at $125/share. The big discount to the deal price is partially on account of concerns China might hold up the deal like it did with Qualcomm’s (NASDAQ:QCOM) acquisition of NXP Semiconductors (NASDAQ:NXPI).

Mr. Sanghi has been the CEO of Microchip (NASDAQ:MCHP) since October 1991 and joined the board of Mellanox in February 2018. This purchase is his one and only purchase since he was appointed to the board of Mellanox. Microchip completed its acquisition of Microsemi in May 2018 and from what I recollect, the deal traded at a large spread shortly after it was announced because of concerns that China might hold up that semiconductor deal.

Mr. Sanghi probably knows a lot about antitrust approval for semiconductor deals and especially the risk a deal faces on account of Chinese opposition. The spread on the Mellanox deal narrowed a little to 11.96% on Friday after this insider purchase was filed. It is possible that the narrowing of the spread could have just been because the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) was up more than 1% on Friday rather than the market reading much into Mr. Sanghi's purchase.

Mellanox Merger Spread Chart (source: InsideArbitrage.com)

Deal Statistics:

Total Number of Deals Closed in 2019 84
Total Number of Deals Not Completed in 2019 6
Total Number of Pending Deals
Cash Deals 37
Stock Deals 19
Stock & Cash Deals 11
Special Conditions 2
Total Number of Pending Deals 69
Total Deal Size $953.52 billion

New Deals:

  1. The acquisition of El Paso Electric Company (NYSE:EE) by J.P. Morgan Investment Management for $4.3 billion or $68.25 per share in cash.
  2. The acquisition of Sears Hometown and Outlet Stores (NASDAQ:SHOS) by Transform Holdco for $171.74 million or $2.25 per share in cash. We added SHOS as a potential deal to the Deals in the Works section on April 8, 2019, and the price after the news of the potential deal came out was $2.18. The deal requires SHOS to sell Sears Outlet and Buddy’s Home Furnishing Stores businesses to a third party for not less than $97.5 million. If the sale price exceeds $97.5 million, the $2.25 per share base price will be revised higher. Transform Holdco is an entity controlled by Eddie Lampert's ESL Investments and other affiliates. SHOS was spun out of Sears Holdings along with various other companies like the REIT Seritage Growth Properties (NYSE:SRG) and the apparel company Land's End (NASDAQ:LE) before Sears Holdings declared bankruptcy. It appears probable that under Mr. Lampert's stewardship, Sears is going to have nine lives, each one more painful than the previous one for investors that get involved on the equity side of the investment.
  3. The acquisition of DNB Financial Corporation (NASDAQ:DNBF) by S&T Bancorp (NASDAQ:STBA) for $206 million in an all-stock deal. Under the terms of the agreement, DNB shareholders will receive 1.22 shares of S&T stock for each share of DNB stock.
  4. The acquisition of Stewardship Financial Corporation (NASDAQ:SSFN) by Columbia Financial (NASDAQ:CLBK) for $271.02 million or $15.75 per share in cash.
  5. The acquisition of Barnes & Noble (NYSE:BKS) by funds advised by Elliott Advisors (NASDAQ:UK) Limited for $683 million or $6.50 per share in cash. We added BKS as a potential deal to the Deals in the Works section on October 3, 2018, and the price after the news of the potential deal came out was $5.09. The transaction is trading at a small premium to the deal price of $6.50 because one more dividend of 15 cents is payable on August 2, 2019, to stockholders of record at the close of business on July 5, 2019.
  6. Raytheon Company (NYSE:RTN) and United Technologies (NYSE:UTX) entered into an agreement to combine in an all-stock merger of equals. Under the terms of the agreement, Raytheon shareowners will receive 2.3348 shares in the combined company for each Raytheon share. Upon completion of the merger, United Technologies shareowners will own approximately 57 percent and Raytheon shareowners will own approximately 43 percent of the combined company on a fully diluted basis. We are not adding this deal to our database as the transaction values can be determined only after the new company is formed.

Deal Updates:

  1. On June 3, 2019, Occidental Petroleum Corporation (NYSE:OXY) announced that the U.S. Federal Trade Commission granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the pending acquisition of Anadarko Petroleum Corporation (NYSE:APC).
  2. On June 4, 2019, The Board of Directors of Electronics For Imaging (NASDAQ:EFII) postponed its 2019 Annual Meeting of Stockholders in light of EFI’s proposed business merger with an affiliate of Siris Capital Group. The 2019 Annual Meeting of Stockholders was to have been held on June 6, 2019, but because the EFI Board of Directors anticipates that the transaction will close in the third quarter of 2019, the Board determined that the Annual Meeting should be postponed.
  3. On June 7, 2019, Chemical Financial Corporation (NASDAQ:CHFC) and TCF Financial Corporation (NYSE:TCF) jointly announced that each company’s shareholders approved the proposed merger of equals in which TCF will merge into Chemical.

Closed Deals:

  1. The acquisition of Nightstar Therapeutics (NASDAQ:NITE) by Biogen (NASDAQ:BIIB) on June 7, 2019. It took 95 days for this deal to be completed.

Top 10 deals with largest spreads:

Symbol AnnouncedDate AcquiringCompany ClosingPrice LastPrice ClosingDate Profit AnnualizedProfit
INUV 11/05/2018 ConversionPoint Technologies, Inc. (N/A) $2.22 $0.64 08/05/2019 246.88% 1609.10%
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $3.21 06/30/2019 69.16% 1262.15%
STC 03/19/2018 Fidelity National Financial, Inc. (NYSE:FNF) $50.58 $41.75 06/30/2019 21.14% 385.89%
PACB 11/01/2018 Illumina, Inc. (NASDAQ:ILMN) $8.00 $6.89 06/30/2019 16.11% 294.01%
AVP 05/22/2019 Natura Cosméticos S.A. (NATU3.SA) $4.42 $3.84 01/31/2020 15.20% 23.61%
MLNX 03/11/2019 Nvidia Corporation $125.00 $111.65 12/31/2019 11.96% 21.39%
S 04/29/2018 T-Mobile US, Inc. (NASDAQ:TMUS) $7.90 $7.1 07/29/2019 11.27% 83.95%
CY 06/02/2019 Infineon Technologies AG (OTCQX:IFNNY) $23.85 $22.12 01/31/2020 7.82% 12.15%
ZAYO 05/08/2019 Affiliates of Digital Colony Partners and EQT Infrastructure IV fund (N/A) $35.00 $32.68 06/30/2020 7.10% 6.71%
LKSD 10/31/2018 Quad/Graphics, Inc. (NYSE:QUAD) $5.64 $5.31 06/30/2019 6.29% 114.71%

Disclosure: I am/we are long RHT, CELG, BMY, FNSR. 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.

Additional disclosure: I hold long positions in Red Hat (RHT), Celgene (CELG), Bristol-Myers Squibb (BMY) and Finisar (FNSR). 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.