Merger Arbitrage Mondays - R. R. Donnelley To Be Acquired By Atlas Holdings

Summary

  • Atlas Holdings acquires R.R. Donnelley & Sons at a 29.1%.
  • Chatham Asset Management offered to acquire R.R. Donnelley a range of $9.00 to 9.50 per share in cash.
  • The go shop period is very short and if the company's management does not engage with Chatham, shareholders would end up with a sub-optimal outcome.

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Merger activity increased last week with six new deals announced and five deals completed. Two of the six new deals announced last week were potential deals in the works.

A 150+ year old company that operates in 28 countries, R. R. Donnelley (NYSE:RRD) provides its business customers with marketing, printing, communication and data analytics services. We added R. R. Donnelley as a potential deal in the works on October 12, 2021, when Chatham Asset Management, RRD's largest bondholder offered to acquire the company for $7.50 per share in cash. RRD's price after this announcement was $6.57.

On November 3, 2021, R. R. Donnelley entered into a definitive merger agreement to be acquired by affiliates of Atlas Holdings for approximately $2.1 billion or $8.52 per share in cash. On the same day, Chatham enhanced its offer to acquire all the common stock of RRD not already owned by Chatham for a range of $9.00 to 9.50 per share in cash. RRD's price went up to $9.11 after this offer was announced. Under the terms of the merger agreement, RRD may solicit additional acquisition proposals from third parties during a "go shop" period of 25 calendar days from the signing of the merger agreement. Given this bidding war it is not surprising to see R. R. Donnelley trade at a negative spread of more than 7% to the $8.52 per share acquisition price.

For a company with $1.5 billion in net debt on the balance sheet and twelve continuous quarters of revenue decline before a 6.42% increase in revenue in Q3 2021, it is rather unusual that not just one suitor but two of them are competing to acquire R. R. Donnelley. The go shop period is very short and if the company's management does not engage with Chatham, shareholders would end up with a sub-optimal outcome.

On August 31, 2021, Monmouth Real Estate Investment Corporation (MNR) terminated its merger with Equity Commonwealth (EQC) after failing to obtain the necessary shareholder votes required to complete the transaction and instead ended up tying the knot with a new suitor. On August 23, 2021, we wrote the following about the bidding war for MNR:

The bidding war for Monmouth Real Estate Investment Corporation continued last week after Equity Commonwealth revised its offer to pay $19.00 per share in a combination of cash and stock. This was countered by Starwood Real Estate Income Trust submitting an enhanced all-cash proposal to acquire MNR for $19.93 per Monmouth share.

We had added MNR as a potential deal in the works almost a year back when Blackwells Capital, one of the largest owners of Monmouth Real Estate Investment Corporation December 18, 2020, it submitted an offer letter on December 18, 2020, outlining an all-cash offer to acquire Monmouth for $18.00 per share. MNR's price after this announcement was $17.61. On November 4, 2021, Monmouth Real Estate entered into a new definitive merger agreement to be acquired by Industrial Logistics Properties Trust (ILPT) for $21.00 per share in an all-cash transaction valued at approximately $4.0 billion.

SPAC Arbitrage

There were 23 SPAC IPOs filed and 3 new SPAC business combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

  1. Black Rifle Coffee Company, a rapidly growing and mission-driven premium coffee company founded to support Veterans announced its plan to go public via a business combination with SilverBox Engaged Merger Corp I (SBEA).
  2. TradeStation Group and Quantum FinTech Acquisition Corporation (QFTA) have executed a definitive business combination agreement through which TradeStation will become a publicly traded company.
  3. AGBA Acquisition Limited (AGBA) announced that it has entered into a business combination agreement with TAG Holdings Limited.

Weekly Spread Changes:

The table below shows weekly spread changes between October 29 and November 5, 2021.

Symbol Quote Acquiring Company AcquiringC ompany Quote Current Spread Last Week Spread Spread Change Weekly Deal Type
TEDU 0.8085 Kidedu Holdings Limited (N/A) 394.74% 359.14% 35.60% All Cash
XLNX 198.625 Advanced Micro Devices, Inc. (AMD) 136.34 18.30% 15.05% 3.25% All Stock
PNM 48.52 Avangrid, Inc. (AGR) 51.45 3.67% 1.11% 2.56% All Cash
MNTV 22.33 Zendesk (ZEN) 101.07 1.84% 0.00% 1.84% All Stock
ICBK 36.76 Nicolet Bankshares, Inc. (NCBS) 75.99 -0.77% -2.52% 1.75% All Stock
FBC 48.29 New York Community Bancorp, Inc. (NYCB) 12.39 3.02% 5.76% -2.74% All Stock
AZPN 161.27 Emerson Electric Co. (EMR) 97.93 -0.79% 2.11% -2.90% Special Conditions
AJRD 45.87 Lockheed Martin Corporation (LMT) 339.89 11.18% 15.88% -4.70% All Cash
JOBS 67.14 Garnet Faith Limited (N/A) 0.00 17.74% 32.72% -14.98% All Cash
XONE 26.75 Desktop Metal, Inc. (DM) 8.61 -4.67% 10.77% -15.44% Special Conditions

Deal Statistics:

Total Number of Deals Closed in 2021 163
Total Number of Deals Not Completed in 2021 12
Total Number of Pending Deals
Cash Deals 52
Stock Deals 28
Stock & Cash Deals 6
Special Conditions 6
Total Number of Pending Deals 92
Total Deal Size $956.68 billion

New Deals:

  1. The acquisition of Rogers Corporation (ROG) by DuPont de Nemours (DD) for $5.2 billion or $277 per share in cash.
  2. The acquisition of R. R. Donnelley & Sons Company by affiliates of Atlas Holdings LLC for $2.1 billion or $8.52 per share in cash. We added RRD as a potential deal to the Deals in the Works section on October 12, 2021, and the price after the news of the potential deal came out was $6.57.
  3. The acquisition of NeoPhotonics Corporation (NPTN) by Lumentum Holdings (LITE) for $745.24 million or $16.00 per share in cash.
  4. The merger of Partners Bancorp (PTRS) with OceanFirst Financial (OCFC) for $186 million in a cash or stock deal. Under the terms of the agreement, Partners stockholders may elect to receive $10.00 in cash or 0.4512 shares of OceanFirst common stock.
  5. The merger of Level One Bancorp (LEVL) with First Merchants Corporation (FRME) for $323.5 million in a cash plus stock deal. Under the terms of the agreement, shareholders of LEVL will have the right to receive a 0.7167 share of First Merchants common stock, in a tax-free exchange, and $10.17 in cash for each share of LEVL common stock owned.
  6. The acquisition of Monmouth Real Estate Investment Corporation by Industrial Logistics Properties Trust for $3.72 billion or $21.00 per share in cash.

Deal Updates:

  1. On November 1, 2021, Covanta Holding Corporation (CVA) announced that it has received all regulatory approvals set forth in the Merger Agreement as conditions to closing the Merger.
  2. On November 1, 2021, Change Healthcare (CHNG) and UnitedHealth Group (UNH) entered into an amendment to the Timing Agreement with the DOJ pursuant to which they agreed not to consummate the Merger before February 22, 2022, unless they have received written notice from the DOJ prior to such date that the DOJ has closed its investigation.
  3. On November 2, 2021, QAD Inc. (QADA) announced that its stockholders approved the acquisition of QAD by Thoma Bravo.
  4. On November 3, 2021, Santander Holdings USA announced that it has extended the expiration date of its previously announced tender offer to acquire all outstanding shares of common stock of Santander Consumer USA Holdings (SC) to November 9, 2021.
  5. On November 4, 2021, Atotech Limited (ATC) announced that it has received shareholder approval to be acquired by MKS Instruments (MKSI).
  6. On November 4, 2021, F.N.B. Corporation (FNB) received all required federal and state regulatory approvals for the completion of the pending merger of Howard Bancorp (HBMD) with and into FNB. Subject to the receipt of stockholder approval at Howard’s special stockholders’ meeting scheduled for November 9, 2021, the completion of the Merger is expected to occur on January 22, 2022.
  7. On November 5, 2021, Lakeland Bancorp (LBAI) and 1st Constitution Bancorp (FCCY) announced the receipt of Federal Deposit Insurance Corporation and New Jersey Department of Banking and Insurance approval in connection with the proposed merger of 1st Constitution with and into Lakeland.
  8. On November 5, 2021, FVCBankcorp (FVCB) reported that it has learned that the Office of the Comptroller of the Currency identified certain regulatory concerns with Blue Ridge Bank (BRBS) that could impact the application process and timing of the merger. Blue Ridge Bank has already commenced an initiative intended to fully address the OCC’s concerns. The Company anticipates the merger will close in the second or third quarter of 2022.
  9. On November 5, 2021, Kadmon Holdings (KDMN) announced that it has received shareholder approval to be acquired by Sanofi (SNY).
  10. On November 5, 2021, Independent Bank (INDB) and Meridian Bancorp (EBSB) jointly reported that they have received all regulatory approvals relating to the transaction. The transaction is expected to be completed on November 12, 2021.

Closed Deals:

  1. The acquisition of VEREIT (VER) by Realty Income Corporation (O) on November 1, 2021. It took 186 days for this deal to be completed.
  2. The acquisition of Vine Energy (VEI) by Chesapeake Energy Corporation (CHK) on November 1, 2021. It took 83 days for this deal to be completed.
  3. The acquisition of Extraction Oil & Gas (XOG) by Bonanza Creek Energy (BCEI) on November 1, 2021. The combined company has now formally been rebranded Civitas Resources and commenced public trading on the NYSE under the ticker (CIVI) from November 2, 2021. It took 175 days for this deal to be completed.
  4. The acquisition of Cortland Bancorp (CLDB) by Farmers National Banc (FMNB) on November 2, 2021. It took 132 days for this deal to be completed.
  5. The acquisition of QAD Inc. by Thoma Bravo on November 5, 2021. It took 130 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
TEDU 04/30/2021 Kidedu Holdings Limited (N/A) $4.00 $0.8085 12/31/2021 394.74% 2668.17%
MX 03/26/2021 South Dearborn Limited (N/A) $29.00 $18.81 12/31/2021 54.17% 366.17%
CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $21.45 02/28/2022 20.05% 64.75%
XLNX 10/27/2020 Advanced Micro Devices, Inc. (AMD) $234.97 $198.625 12/31/2021 18.30% 123.68%
JOBS 06/21/2021 Garnet Faith Limited (N/A) $79.05 $67.14 12/31/2021 17.74% 119.90%
SJR 03/15/2021 Rogers Communications Inc. (RCI) $32.40 $28.81 06/30/2022 12.46% 19.35%
AJRD 12/20/2020 Lockheed Martin Corporation (LMT) $51.00 $45.87 12/31/2021 11.18% 75.59%
SOLY 05/10/2021 Allergan Aesthetics (N/A) $22.60 $20.53 12/31/2021 10.08% 68.15%
COHR 03/25/2021 II-VI Incorporated (IIVI) $278.47 $258.73 12/31/2021 7.63% 51.56%
SAFM 08/09/2021 Cargill and Continental Grain Company (N/A) $203.00 $188.89 01/31/2022 7.47% 32.08%

Conclusion:

SPAC activity continued to increase last week with 23 new SPAC IPOs filed. In the M&A space, the trend of bidding wars we saw in the space for multiple quarters continues. Multiple active deals received required shareholder and regulatory approvals. With six new deals announced last week, the total value of active deals is approaching $1 trillion.

This article was written by

Asif Suria profile picture
9.64K Followers
Comprehensive tools and detailed analysis for event-driven investors

I am an entrepreneur and investor with a focus on event driven strategies including merger arbitrage, spinoffs, (legal) insider trading, buybacks and SPACs. I was one of the earliest contributors on Seeking Alpha and started publishing here in 2005. For more than a decade I have been writing every week about M&A and interesting insider transactions. My work has been mentioned in Barron's, Dow Jones, BNN Bloomberg and other publications.  

I have been an active investor for more than two decades and my background in technology has helped me built tools that inform my investing process, especially as it relates to event-driven strategies that require updated data and processes. The focus on my Inside Arbitrage service is to provide investors with the right combination of tools and analysis to help them take advantage of strategies that can perform well across market cycles.  

Disclosure: I/we have a beneficial long position in the shares of MX, 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.

Additional disclosure: Disclaimer: I have long positions in Magnachip Semiconductor (MX), 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.

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