Merger Arbitrage Mondays: Zendesk Shareholders Unhappy About Momentive Deal

Summary

• Potential deal in the works, Momentive Global to be acquired by Zendesk.
• Zendesk, Momentive stocks fell after the deal was announced.
• Zendesk investors are clearly not happy with this deal and the stock received multiple downgrades after the deal was announced.

Sundry Photography/iStock Editorial via Getty Images

Merger activity increased last week with five new deals announced and four deals completed.

We added Momentive Global (NASDAQ:MNTV) as a potential deal in the works on Oct. 6, 2021, when Bloomberg reported that activist investor Legion Partners Asset Management was calling for a strategic review including a potential sale of the company. Momentive’s price after this announcement was $20.61.

Momentive Global, formerly known as SurveyMonkey, was founded in 1999. Dave Goldberg joined SurveyMonkey as CEO in 2009 and in the same year Spectrum Equity and Bain Capital acquired a majority interest in the company. The company is headquartered in San Mateo, Calif., and operates as an experienced management company, providing cloud-based software solutions to companies.

On Oct. 28, 2021, Zendesk (NYSE:ZEN) announced that it will acquire Momentive, including its iconic SurveyMonkey platform, in an all-stock deal. Zendesk stock fell 14% and Momentive fell 8% after this deal was announced. In its most recent quarter, Zendesk grew its earnings by 32% while Momentive grew its revenue by just 20%. Zendesk also is profitable, while Momentive has been posting losses. Zendesk investors are clearly not happy with this deal and the stock received multiple downgrades after the deal was announced. Shareholder approval is likely to be the key hurdle with this deal considering Momentive stock is now trading below where it was before the deal was announced.

SPAC Arbitrage

There were 15 SPAC IPOs filed and 2 new SPAC business combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

1. FaZe Clan announced that it has entered into a definitive merger agreement to combine with B. Riley Principal 150 Merger (BRPM).
2. Tailwind Two Acquisition (TWNT) and Terran Orbital Corporation, the global leader and pioneer in the development, innovation, and operation of small satellites and earth observation solutions, jointly announced that they have entered into a definitive business combination agreement.

Weekly Spread Changes:

The table below shows weekly spread changes between October 15 and October 22, 2021.

Symbol	Quote	AcquiringCompany	AcquiringCompany Quote	CurrentSpread	Last WeekSpread	Spread ChangeWeekly	DealType
TEDU	0.8712	Kidedu Holdings Limited (N/A)		359.14%	277.36%	81.78%	All Cash
JOBS	59.56	Garnet Faith Limited (N/A)	0.00	32.72%	23.55%	9.17%	All Cash
CLDB	29.15	Farmers National Banc Corp. (FMNB)	17.82	6.98%	2.89%	4.09%	All Stock
FBC	47.19	New York Community Bancorp, Inc. (NYCB)	12.43	5.76%	2.07%	3.69%	All Stock
SPWH	17.26	The Great American Outdoors Group (N/A)		4.29%	1.93%	2.36%	All Cash
HBMD	20.71	F.N.B. Corporation (FNB)	11.65	1.26%	3.98%	-2.72%	All Stock
MRLN	22.92	HPS Investment Partners LLC (N/A)		2.53%	5.57%	-3.04%	All Cash
XLNX	180	Advanced Micro Devices, Inc. (AMD)	120.16	15.05%	19.65%	-4.60%	All Stock
XONE	23.02	Desktop Metal, Inc. (DM)	6.99	10.77%	15.49%	-4.72%	Special Conditions
MX	18.96	South Dearborn Limited (N/A)		52.95%	61.38%	-8.43%	All Cash

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Deal Statistics:

Total Number of Deals Closed in 2021	158
Total Number of Deals Not Completed in 2021	12
Total Number of Pending Deals
Cash Deals	48
Stock Deals	31
Stock & Cash Deals	6
Special Conditions	5
Total Number of Pending Deals	90
Total Deal Size	$943.94 billion

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New Deals:

1. The acquisition of PAE Inc. (PAE) by Amentum Government Services Holdings for $1.9 billion or $10.05 per share in cash.
2. The acquisition of Dawson Geophysical Company (DWSN) by Wilks Brothers for $18.56 million or $2.34 per share in cash.
3. The merger of Oasis Midstream Partners (OMP) with Crestwood Equity Partners (CEQP) for $1.8 billion in an all-stock deal. Under the terms of the agreement, OMP unitholders will receive 0.87 units of Crestwood common units for each unit of OMP owned.
4. The acquisition of Phillips 66 Partners (PSXP) by Phillips 66 (PSX) for $14.5 billion in an all-stock deal. Under the terms of the agreement, each outstanding PSXP common unitholder would receive 0.50 shares of PSX common stock for each PSXP common unit.
5. The acquisition of Momentive Global by Zendesk for $4.21 billion in an all-stock deal. Under the terms of the agreement, Momentive stockholders will receive 0.225 shares of Zendesk stock for each share of Momentive stock. We added MNTV as a potential deal to the Deals in the Works section on October 6, 2021, and the price after the news of the potential deal came out was $20.61.

Deal Updates:

1. On October 27, 2021, Sanderson Farms (SAFM) has received regulatory approvals from each of the Ministry of Commerce of the People’s Republic of China and the Federal Economic Competition Commission of Mexico in connection with the transactions contemplated by the Agreement and Plan of Merger.
2. On October 27, 2021, Trillium Therapeutics (TRIL) announced that it has received a final order from the Supreme Court of British Columbia approving the previously announced plan of arrangement with PF Argentum, a wholly-owned, indirect subsidiary of Pfizer (PFE).
3. On October 28, 2021, The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), expired in connection with the previously announced proposed merger between The ExOne Company (XONE) and Desktop Metal (DM).
4. On October 28, 2021, the Acting CFIUS Staff Chairperson notified Magnachip Semiconductor Corporation (MX) and South Dearborn Limited that CFIUS is undertaking an investigation of the Merger pursuant to Section 721(B)(2) of the Defense Production Act of 1950, as amended, which will be completed no later than December 13, 2021. There can be no assurance that the Company and Parent will develop or agree to any proposals that would result in CFIUS clearance.
5. On October 29, 2021, shareholders of Extraction Oil & Gas (XOG) approved the company’s merger with Bonanza Creek Energy (BCEI) at a special meeting of shareholders.
6. On October 29, 2021, Canadian Pacific Railway Limited (CP) and Kansas City Southern (KSU) announced that they have jointly filed a railroad control application with the Surface Transportation Board regarding the proposed transaction to create Canadian Pacific Kansas City.

Closed Deals:

1. The acquisition of Cadence Bancorporation (CADE) by BancorpSouth Bank on October 29, 2021. It took 200 days for this deal to be completed.
2. The acquisition of Misonix (MSON) by Bioventus (BVS) on October 29, 2021. It took 92 days for this deal to be completed.
3. The acquisition of Medallia (MDLA) by Thoma Bravo on October 29, 2021. It took 95 days for this deal to be completed.
4. The acquisition of Severn Bancorp (SVBI) by Shore Bancshares (SHBI) on October 29, 2021. It took 240 days for this deal to be completed.

Top 10 deals with largest spreads:

Symbol	AnnouncedDate	AcquiringCompany	ClosingPrice	LastPrice	ClosingDate	Profit	AnnualizedProfit
TEDU	04/30/2021	Kidedu Holdings Limited (N/A)	$4.00	$0.8712	12/31/2021	359.14%	2148.93%
MX	03/26/2021	South Dearborn Limited (N/A)	$29.00	$18.96	12/31/2021	52.95%	316.85%
JOBS	06/21/2021	Garnet Faith Limited (N/A)	$79.05	$59.56	12/31/2021	32.72%	195.80%
CHNG	01/06/2021	UnitedHealth Group Incorporated (UNH)	$25.75	$21.53	12/31/2021	19.60%	117.28%
AJRD	12/20/2020	Lockheed Martin Corporation (LMT)	$51.00	$44.01	12/31/2021	15.88%	95.04%
XLNX	10/27/2020	Advanced Micro Devices, Inc. (AMD)	$207.08	$180	12/31/2021	15.05%	90.03%
SJR	03/15/2021	Rogers Communications Inc. (RCI)	$32.40	$28.84	06/30/2022	12.34%	18.62%
XONE	08/11/2021	Desktop Metal, Inc. (DM)	$25.50	$23.02	12/31/2021	10.77%	64.46%
SOLY	05/10/2021	Allergan Aesthetics (N/A)	$22.60	$20.59	12/31/2021	9.76%	58.41%
COHR	03/25/2021	II-VI Incorporated (IIVI)	$275.06	$254.4	12/31/2021	8.12%	48.60%

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Conclusion:

SPAC activity seems to be picking up pace once again with 57 SPAC IPOs filed in the month of October. SPAC business combinations continue to grow as well. One of the significant SPAC business combinations in October was the merger agreement between Trump Media & Technology Group and Digital World Acquisition (DWAC) to create a new social media network. DWAC skyrocketed after the announcement of this combination, highlighting the opportunities and pitfalls that lurk in SPACs.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of NUAN, CHNG, TRIL either through stock ownership, options, or other derivatives. 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.

Disclaimer: I have long positions in Nuance Communications (NUAN), Change Healthcare (CHNG) and Trillium Therapeutics (TRIL). I also have put options in Change Healthcare. 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.

Comments

[Likrat ha-Tiferet]

> Zendesk grew its earnings by 32%

ZEN has never had any earnings. while its sales have risen at impressive 31% a year over the last 5 years, its expenses have risen at far less impressive 29%. On current trends, the two will cross in on 2035?

[AlieGee]

Great info. Thank you. Glad I held onto CEPQ. Really wasn't all
that painful as they kept paying even in so-so times!

[Asif Suria]

@AlieGee You are welcome. The whole midstream segment is making a comeback along with the rest of the energy sector. I had exposure through AMLP.

[AlieGee]

@Asif Suria I added more AMLP today. Nice yield but I don't like how it's taxed. Even AMZA is trying to make a comeback.

[Asif Suria]

@AlieGee The nice thing is that you don't get a K-1 with AMLP. The distribution wouldn't be taxed in a tax deferred account, would it?

[Bobbie B]

Isn't there another outfit looking to buy MX?

[Asif Suria]

@Bobbie B Cornucopia made a $35 unsolicited bid but then backed out when the regulatory environment changed. There were more than half a dozen bidders originally before the deal with Wise Road was signed.