Entering text into the input field will update the search result below

Merger Arbitrage Analysis And Spread Performance - March 1, 2020

Mar. 02, 2020 1:41 PM ETBREW, BUD, BUDFF, MLNX, MNA, NVDA, RRGB7 Comments


  • Red Robin Gourmet Burgers suffers a major setback as results disappoint.
  • Mellanox gets caught up in negative sentiment as arbitrage spread widens.
  • Average all-cash merger arbitrage spreads widen significantly in volatile trading week.

This article explains the reasons behind the movement in a selection of the largest U.S. cash merger arbitrage spreads from the past week as calculated by Merger Arbitrage Limited. We analyze the attractiveness and profitability of each spread going forward and indicate the trading position or action we have taken or intend to take based upon the analysis given.

Red Robin Gourmet Burgers (RRGB)

Red Robin suffered the worst decline in its history last week as a set of less than impressive results were announced. Despite management's attempt to present the numbers in a positive light, the figures were well short of analysts' expectations. This led to two consecutive days where the stock was crushed by more than 10% each time. By Friday, RRGB had closed down for the week by $9.19 at $27.50 against an offer price of $40 from Vintage Capital, a fall of 25.05%, leaving the simple spread at 45.45%. This closing level was almost $2 above the low of the week. A rebound fueled by the announcement that Vintage Capital had nominated 4 directors for election to the board. The date of which is yet to be announced. In response to the nominations, RRGB management reaffirmed their commitment to the strategic plan and long-term success of the company and implemented a share buyback program, all whilst continuing dialogue with Vintage.

ChartData by YCharts

Going forward, we continue with our active arbitrage strategy and exploit this unprecedented level of volatility. We clearly stated how we had reduced our position as the stock rose, thus protecting us from significant losses during this recent fall. Although we bought back a large amount of stock at higher levels, we were still able to benefit from the lower levels on Wednesday and subsequently started selling again by Friday for a profit. We shall continue with our strategy

This article was written by

Merger Arbitrage Limited is a successful Event Driven & Special Situations Investment fund. Along with the website Merger Arbitrage Limited the fund specializes in Merger Arbitrage (Risk Arbitrage). The investment process focusses on the following key elements i) Evaluation of relative risk/return characteristics ii) Time frame analysis iii) Entry/exit points This focus has resulted in multiple variants of the traditional merger arbitrage strategy each having their own unique characteristics. In concert, these strategies produce an attractive source of alternative beta with less risk than traditional plain vanilla merger arbitrage thus producing an attractive sharp ratio consistently above 2. The key areas listed above have been intensely researched and build extensively upon existing academic literature resulting in a series of proprietary algorithms. The primary geographic area of operation is (but not restricted to) the US and encompasses all deal types.

Analyst’s Disclosure: I am/we are long RRGB. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.