Merger activity decreased last week with two new deals announced and three deals completed.
Co-founded in 1968 by Franc Wertheimer and George J. Pedersen, ManTech International Corporation is an American defense contracting firm based in Herndon, Virginia. We added ManTech as a potential deal on February 3, 2022, when Reuters reported that George Pedersen was exploring options for his controlling stake in the company. ManTech's price after this announcement was $73.50. Reuters reported that:
"The deliberations are part of Pedersen's estate planning, according to sources. Were the 85-year-old billionaire to pass away, the trust that holds his 32% stake in ManTech would no longer exercise voting control, according to regulatory filings.
Goldman Sachs Group has been retained to explore a sale of ManTech, the sources said. The investment bank has reached out to ManTech's peers such as Parsons Corp and Leidos Holdings, as well as private equity firms, to gauge potential acquisition interest."
On May 16, 2022, ManTech International Corporation entered into a definitive agreement to be acquired by global investment firm The Carlyle Group (CG) for $4.2 billion in cash, representing a premium of 17% to ManTech's closing price on May 13. The deal is expected to close in the second half of 2022, and, according to the merger agreement, the termination fee to be paid by ManTech if it terminates the deal is $115.88 million. The termination fee to be paid by Carlyle if it terminates the agreement is $239.75 million.
There is usually uncertainty related to mergers and acquisitions in the defense sector, especially after federal antitrust overseers blocked the proposed deal between Lockheed Martin (LMT) and Aerojet Rocketdyne Holdings (AJRD) earlier this year. However since it is a private equity firm that is acquiring ManTech, regulatory risk is likely to be much lower than an acquisition by a strategic firm.
Incorporated in 2018 and based in Midland, Texas. Rattler Midstream is a subsidiary of Diamondback Energy (FANG). Rattler Midstream owns, operates, develops and acquires midstream and energy-related infrastructure assets.
Diamondback Energy was the spotlight idea for our October 2021 Special Situations Newsletter, after the company announced a large $2 billion share buyback. That represented nearly 14% of the company's market cap at the time of announcement. The market reacted positively to this announcement, and, in short order, the stock that was trading around $80 at the time of announcement went up nearly 20%.
We wrote the following about Diamondback Energy in the newsletter:
What was remarkable about this buyback announcement was that it was coming from a fracking company. When I think of fracking companies, the first thing that comes to mind is the hilarious "meet the frackers" presentation by Einhorn at the Sohn Conference in 2015. I have a great deal of respect for Greenlight Capital's David Einhorn and I enjoyed reading his book Fooling Some of the People All of the Time, A Long Short Story about his multi-year battle shorting Allied Capital. For a period of time, Einhorn was right about the frackers as they continued to consume ever increasing amounts of capital to drill holes, flood the energy market with excess supply and got hurt by an OPEC engineered price war.
However, this has changed in recent years with companies like Continental Resources and Diamondback Energy reigning in costs and being selective about CapEx. The huge rebound in the price of WTI has helped and instead of drilling more and increasing CapEx, companies like Diamondback are now focused on returning value to shareholders through buybacks and increasing dividends.
The following quote from the CEO of Diamondback Energy when reporting the company's Q2 2021 results speaks volumes,
"During the second quarter, we generated $578 million in free cash flow or $3.18 per diluted share. To put this into perspective, we entered 2021 anticipating roughly this amount of free cash flow for the full year.
Operationally, capital efficiency continues to improve. As a result, we are cutting our 2021 capital budget by $100 million due to cost control and volume outperformance. Put simply, we are doing more with less: producing more barrels with less capital, fewer completed wells and fewer drilling rigs"
Diamondback Energy completed its acquisition of QEP Resources (QEP) in an all-stock merger on March 17, 2021. As part of the internal restructuring of the company's subsidiaries, former wholly owned subsidiaries of Diamondback, were merged with and into Diamondback E&P LLC on June 30, 2021.
Viper Energy Partners (VNOM) and Rattler Midstream (RTLR) are Diamondback's publicly traded subsidiaries. While Viper is focused on owning and acquiring minerals and royalty interests in the Permian Basin, Rattler Midstream owns crude oil, natural gas, and water-related midstream assets in the Permian Basin that provide services to Diamondback Energy and third party customers. As of June 30, 2021, Diamondback Energy owned approximately 59% of Viper's total units outstanding and approximately 72% of Rattler's total units outstanding.
On May 16, 2022, Diamondback Energy and Rattler Midstream entered into a definitive agreement for Diamondback to acquire all of the publicly held common units representing the limited partner interests in Rattler not already owned by Diamondback and its subsidiaries. The deal is expected to be completed in the third quarter of 2022.
There were seven new SPAC combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.
The table below shows weekly spread changes between May 13 and May 20, 2022.
|Symbol||Quote||Acquiring Company||Acquiring Company Quote||Current Spread||Last Week Spread||Spread Change Weekly||Deal Type|
|(ATC)||19.57||MKS Instruments, Inc. (MKSI)||117.51||15.93%||7.18%||8.75%||Cash Plus Stock|
|(TWTR)||38.29||Elon Musk (N/A)||41.55%||33.10%||8.45%||All Cash|
|(NP)||36.31||Schweitzer-Mauduit International, Inc. (SWM)||26.31||-1.60%||-7.83%||6.23%||All Stock|
|(TEN)||16||Apollo Global Management, Inc. (APO)||54.48||25.00%||20.26%||4.74%||All Cash|
|(EMCF)||33.83||Farmers National Banc Corp. (FMNB)||14.57||-7.40%||-11.05%||3.65%||All Stock|
|(CDR)||26.32||Wheeler Real Estate Investment Trust, Inc. (WHLR)||1.99||10.18%||14.94%||-4.76%||All Cash|
|(SJR)||28.13||Rogers Communications Inc. (RCI)||50.51||15.18%||20.63%||-5.45%||Special Conditions|
|(MBII)||1.11||Bioceres Crop Solutions Corp. (BIOX)||14.27||13.13%||19.07%||-5.94%||All Stock|
|(SAVE)||18.99||Frontier Group Holdings, Inc. (ULCC)||9.2||3.88%||10.76%||-6.88%||Cash Plus Stock|
|(RDBX)||5.32||Chicken Soup for the Soul Entertainment, Inc. (CSSE)||6.27||-89.75%||-82.21%||-7.54%||All Stock|
|Total Number of Deals Closed in 2022||71|
|Total Number of Deals Not Completed in 2022||4|
|Total Number of Pending Deals|
|Stock & Cash Deals||10|
|Total Number of Pending Deals||85|
|Aggregate Deal Consideration||$847.72 billion|
Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as "special situation" deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.
|Symbol||Announced Date||Acquiring Company||Closing Price||Last Price||Closing Date||Profit||Annualized Profit|
|(TWTR)||04/25/2022||Elon Musk (N/A)||$54.20||$38.29||12/31/2022||41.55%||68.01%|
|(BLCT)||04/30/2022||Multelements Limited (N/A)||$1.60||$1.27||12/31/2022||25.98%||42.53%|
|(TEN)||02/23/2022||Apollo Global Management, Inc. (APO)||$20.00||$16||12/31/2022||25.00%||40.92%|
|(ATVI)||01/18/2022||Microsoft Corporation (MSFT)||$95.00||$77.4||06/30/2023||22.74%||20.54%|
|(SIMO)||05/05/2022||MaxLinear, Inc. (MXL)||$108.46||$89.78||06/30/2023||20.80%||18.80%|
|(CHNG)||01/06/2021||UnitedHealth Group Incorporated (UNH)||$27.75||$23.05||12/31/2022||20.39%||33.37%|
|(BKI)||05/04/2022||Intercontinental Exchange, Inc. (ICE)||$85.00||$71.96||06/30/2023||18.12%||16.37%|
|(MGI)||02/15/2022||Madison Dearborn Partners, LLC (N/A)||$11.00||$9.38||12/31/2022||17.27%||28.27%|
|(TSEM)||02/15/2022||Intel Corporation (INTC)||$53.00||$45.69||02/15/2023||16.00%||21.71%|
|(ATC)||07/01/2021||MKS Instruments, Inc. (MKSI)||$22.69||$19.57||09/30/2022||15.93%||44.37%|
SPAC activity increased significantly last week with seven new SPAC business combinations announced. Multiple deals in the Merger Arbitrage Tool received shareholders approval last week. Around 21 active deals are still trading at spreads over 10%.
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This article was written by
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.
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