Merger Arbitrage Mondays - Liberty Tax Agrees To Pay 44% More For Sears Hometown And Outlet Stores

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Includes: AMGN, CELG, PDCE, SRCI
by: Asif Suria
Summary

Merger activity remained unchanged last week.

The acquisition of SRC Energy by PDC Energy.

Celgene agreed to sell its OTEZLA product line to Amgen.

Merger activity remained unchanged last week with four new deals announced and three deals closing.

Deal Statistics:

Total Number of Deals Closed in 2019 124
Total Number of Deals Not Completed in 2019 8
Total Number of Pending Deals
Cash Deals 51
Stock Deals 16
Stock & Cash Deals 13
Special Conditions 5
Total Number of Pending Deals 85
Aggregate Deal Consideration $1.13 trillion

New Deals:

  1. The acquisition of SRC Energy (NYSEMKT:SRCI) by PDC Energy (NASDAQ:PDCE) for $1.7 billion in an all-stock deal. Under the terms of the agreement, SRC shareholders will receive a fixed exchange ratio of 0.158 PDC shares for each share of SRC common stock. We added SRCI as a potential deal to the Deals in the Works section on August 7, 2019, and the price after the news of the potential deal came out was $4.26.
  2. The acquisition of Ecology & Environment (NASDAQ:EEI) by WSP Global (OTCPK:WSPOF) for $50.5 million. Under the terms of the agreement, EEI's shareholders will receive $15.00 in cash, and a special dividend of up to $0.50, for each share of Class A and Class B common stock they own.
  3. The acquisition of Castle Brands (NYSEMKT:ROX) by Pernod Ricard (OTCPK:PDRDF) for $223 million or $1.27 per share in cash. We added ROX as a potential deal to the Deals in the Works section on April 26, 2017, and the price after the news of the potential deal came out was $1.62.
  4. The acquisition of Reven Housing REIT (OTC:RVEN) by KBS Strategic Opportunity REIT (OTC:KSBO) for $56.85 million or approximately $5.15 per share in cash subject to adjustments.

Deal Updates:

  1. On August 25, 2019, Celgene (NASDAQ:CELG) and Amgen (NASDAQ:AMGN) entered into an asset purchase agreement pursuant to which Celgene agreed to sell to Amgen its OTEZLA product line for a cash purchase price of $13.4 billion. The consummation of the OTEZLA Divestiture is subject to Bristol-Myers Squibb (NYSE:BMY) and Celgene entering into a consent decree with the FTC in connection with the pending merger. Subject to the FTC's acceptance of a consent order and the satisfaction of customary closing conditions, Celgene and Bristol-Myers Squibb currently expect to close the pending merger by the end of 2019.
  2. On August 26, 2019, shareholders of PCM, Inc. (NASDAQ:PCMI) approved the company's merger with Insight Enterprises (NASDAQ:NSIT) at a special meeting of shareholders.
  3. On August 26, 2019, WageWorks (NYSE:WAGE) said it has received an unsolicited letter of interest from Mansa Parent that values the company at $58.58 a share. The company said its board has reviewed the letter and unanimously concluded that it contains significant contingencies and is not reasonably expected to result in a superior proposal under the terms of WageWorks' previously announced merger with HealthEquity (NASDAQ:HQY).
  4. On August 27, 2019, Liberty Tax (OTCPK:TAXA) and Sears Hometown and Outlet Stores (NASDAQ:SHOS) announced that they have entered into a definitive purchase agreement whereby Liberty Tax will acquire Sears Hometown's Outlet business as well as its Buddy's Home Furnishings Stores in an all-cash transaction valued at up to approximately $132.9 million. As a result of the sale, which is estimated to result in net proceeds of approximately $121 million, the merger consideration payable by Transform in the merger transaction for the outstanding shares of Sears Hometown not owned by ESL Investments and its affiliates is estimated to be approximately $3.25 per share in cash, an increase of approximately $1.00 or approximately 44.4%, from the previously announced base merger consideration of $2.25 per share.
  5. On August 27, 2019, shareholders of Cray (NASDAQ:CRAY) approved the company's merger with Hewlett Packard Enterprise (NYSE:HPE) at a special meeting of shareholders.
  6. On August 27, 2019, shareholders of Cypress Semiconductor Corporation (NASDAQ:CY) approved the company's merger with Infineon Technologies AG (OTCQX:IFNNY) at a special meeting of shareholders.
  7. On August 28, 2019, The European Union cleared the acquisition of Sotheby's (NYSE:BID) by BidFair USA.
  8. On August 29, 2019, shareholders of Pointer Telocation (NASDAQ:PNTR) approved the company's merger with I.D. Systems (NASDAQ:IDSY) at a special meeting of shareholders.
  9. On August 29, 2019, shareholders of Hydrogenics Corporation (NASDAQ:HYGS) approved the company's merger with Cummins (NYSE:CMI) at a special meeting of shareholders.
  10. On August 29, 2019, shareholders of Total System Services (NYSE:TSS) approved the company's merger with Global Payments (NYSE:GPN) at a special meeting of shareholders.
  11. On August 31, 2019, Federal Communications Commission chairman Ajit Pai sought approval from his colleagues to order the go-ahead for Nexstar Media Group (NASDAQ:NXST) acquisition of Tribune Media (NYSE:TRCO).

Closed Deals:

  1. The acquisition of WageWorks by HealthEquity on August 30, 2019. It took 64 days for this deal to be completed.
  2. The acquisition of MBT Financial Corporation (NASDAQ:MBTF) by First Merchants Corporation (NASDAQ:FRME) on August 30, 2019. It took 324 days for this deal to be completed.
  3. The acquisition of PCM by Insight Enterprises on August 30, 2019. It took 67 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
STC 03/19/2018 Fidelity National Financial, Inc. (FNF) $53.57 $35.72 09/30/2019 49.96% 675.38%
PACB 11/01/2018 Illumina, Inc. (ILMN) $8.00 $5.67 12/31/2019 41.09% 126.04%
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $4.415 12/31/2019 22.99% 70.51%
ABDC 08/13/2019 Crescent Capital BDC, Inc. (N/A) $11.02 $8.98 12/31/2019 22.72% 69.68%
S 04/29/2018 T-Mobile US, Inc. (TMUS) $7.93 $6.665 01/31/2020 18.96% 46.14%
ONCE 02/25/2019 Roche Holding AG (RHHBY) $114.50 $98.36 04/30/2020 16.41% 24.96%
MLNX 03/11/2019 NVIDIA Corporation (NVDA) $125.00 $107.39 12/31/2019 16.40% 50.30%
AVP 05/22/2019 Natura Cosméticos S.A. (NATU3.SA) $4.71 $4.14 01/31/2020 13.67% 33.26%
OHAI 08/01/2019 Portman Ridge Finance Corporation (PTMN) $1.46 $1.3 12/31/2019 12.31% 37.75%
ACIA 07/08/2019 Cisco Systems, Inc. (CSCO) $70.00 $63.07 07/31/2020 10.99% 12.08%

Disclaimer: I hold long positions in Mellanox Technologies, Pacific Biosciences of California, Celgene, Bristol-Myers Squibb, and Finisar (NASDAQ: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.

Disclosure: I am/we are long MLNX, PACB, 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.