Merger Arbitrage Mondays: Carlyle To Acquire Defense Contractor ManTech

Summary

  • Potential deal in the works, ManTech International Corporation entered into a definitive agreement to be acquired by global investment firm Carlyle.
  • Diamondback to acquire all of the publicly held common units representing the limited partner interests in Rattler not already owned by Diamondback.
  • Seven new SPAC Business Combinations announced last week.
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American soldier in headquarter control center

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Merger activity decreased last week with two new deals announced and three deals completed.

ManTech International Corporation (NASDAQ:MANT)

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.

Rattler Midstream LP (RTLR)

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.

SPAC Arbitrage

There were seven new SPAC combinations announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

  1. On May 16, 2022, Grey Rock Investment Partners, a Dallas-based investment firm, and Executive Network Partnering Corporation (ENPC) entered into a definitive agreement.
  2. On May 16, 2022, Dragonfly Energy, an energy storage and producer of deep cycle lithium-ion storage batteries, and Chardan NexTech Acquisition 2 Corp. (CNTQ) announced a definitive agreement for a business combination.
  3. On May 17, 2022, zSpace and EdtechX Holdings Acquisition Corp. II (EDTX) announced that the two companies have entered into a definitive merger agreement that would result in zSpace becoming publicly traded.
  4. On May 17, 2022, PropTech Investment Corporation II (PTIC) and RW National Holdings, the parent holding company of Renters Warehouse, have entered into a definitive agreement which will result in Appreciate becoming a publicly listed company.
  5. On May 18, 2022, Surf Air Mobility and Tuscan Holdings Corp. II (THCA) entered into a definitive business combination agreement.
  6. On May 19, 2022, Alpine Acquisition Corporation (REVE), and Two Bit Circus, creators of the world's first Micro-Amusement Parks and an experiential entertainment leader jointly announced that they have entered into definitive agreements for a business combination.
  7. On May 19, 2022, Near Intelligence Holdings, a privacy-led data intelligence on people, places and products and KludeIn I Acquisition (INKA) entered into a definitive business combination agreement that will result in Near becoming a publicly listed company.

Weekly Spread Changes

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

Deal Statistics

Total Number of Deals Closed in 2022 71
Total Number of Deals Not Completed in 2022 4
Total Number of Pending Deals
Cash Deals 55
Stock Deals 12
Stock & Cash Deals 10
Special Conditions 8
Total Number of Pending Deals 85
Aggregate Deal Consideration $847.72 billion

New Deals

  1. The acquisition of Rattler Midstream (RTLR) by Diamondback Energy (FANG) for $2.36 billion in an all stock deal. Under the terms of the agreement, each public unitholder of Rattler would receive 0.113 of a share of common stock in Diamondback in exchange for each Rattler common unit owned.
  2. The acquisition of ManTech International Corporation (MANT) by The Carlyle Group (CG) for $4.2 billion or $96 per share in cash. We added MANT as a potential deal to the Deals in the Works section on February 3, 2022, and the price after the news of the potential deal came out was $73.50.

Deal Updates

  1. On May 16, 2022, JetBlue Airways Corporation (JBLU) offered to purchase all of the outstanding shares of Spirit Airlines (SAVE) for $30 per share.
  2. On May 16, 2022, shareholders OF Ortho Clinical Diagnostics Holdings (OCDX) voted to approve the combination of the Company with Quidel Corporation (QDEL). The closing of the transactions is expected to occur on May 27, 2022.
  3. On May 16, 2022, Schweitzer-Mauduit International (SWM) and Neenah (NP) announced the future executive leadership team and operating structure for the combined company, effective upon completing their pending merger. Julie Schertell, President and Chief Executive Officer of Neenah, will serve as President, Chief Executive Officer, and a member of the Board of Directors. Dr. Jeff Kramer, Chief Executive Officer of SWM, will serve as a strategic advisor.
  4. On May 16, 2022, SailPoint Technologies Holdings (SAIL) announced that the 35-day "go-shop" period under the terms of the previously announced definitive agreement expired on May 16, 2022.
  5. On May 17, 2022, Twitter (TWTR) filed its preliminary proxy statement with the U.S. Securities and Exchange Commission, stating that Twitter is committed to completing the transaction on the agreed price and terms as promptly as practicable.
  6. On May 17, 2022, Plantronics (POLY) announced that the special meeting of stockholders will be on June 23, 2022.
  7. On May 17, 2022, TEGNA (TGNA) announced that at a special meeting of shareholders held, its shareholders voted to adopt the agreement and plan of merger.
  8. On May 17, 2022, CBTX (CBTX) and Allegiance Bancshares (ABTX) jointly announced that Stellar Bancorp, Inc. will be the name of the combined company and Stellar Bank will be the name of the combined bank to be created through their merger of equals.
  9. On May 17, 2022, Renewable Energy Group (REGI) announced that its stockholders voted to adopt the previously announced definitive agreement, in which REG will be acquired by Chevron Corporation (CVX).
  10. On May 19, 2022, Spirit Airlines (SAVE) announced that its Board of Directors, after consultation with its outside financial and legal advisors, has unanimously determined that the unsolicited tender offer from JetBlue Airways Corporation (JBLU) to acquire all outstanding shares of Spirit's common stock for $30 per share in cash is NOT in the best interests of Spirit and its stockholders.
  11. On May 19, 2022, Take-Two Interactive Software (TTWO) and Zynga (ZNGA), announced that the stockholders of each organization have approved all proposals related to Take-Two's combination with Zynga.
  12. On May 20, 2022, Vonage Holdings (VG) and Ericsson (ERIC) extended the termination date of the merger agreement by a period of three months to August 22, 2022.

Closed Deals

  1. The acquisition of Elmira Savings Bank (ESBK) by Community Bank System (CBU) on May 16, 2022. It took 224 days for this deal to be completed.
  2. The acquisition of Aspen Technology (AZPN) by Emerson Electric (EMR) on May 16, 2022. It took 217 days for this deal to be completed.
  3. The acquisition of Mimecast Limited (MIME) by Permira on May 19, 2022. It took 163 days for this deal to be completed.

Top 10 deals with largest spreads

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%

Conclusion

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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Beyond insider buying, Inside Arbitrage also provides ideas and tools related to buybacks, spinoffs, SPACs and merger arbitrage. Click here to learn more.

This article was written by

Asif Suria profile picture
9.53K 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.  

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Disclosure: I/we have a beneficial long position in the shares of FANG, BHVN, TWTR, FHN, TSEM, HTA, TGNA, BRG 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 Diamondback Energy (FANG), Biohaven Pharmaceutical (BHVN), Twitter (TWTR), First Horizon (FHN), Tower Semiconductor (TSEM), Healthcare Trust of America (HTA), TEGNA (TGNA) and Bluerock Residential Growth REIT (BRG). 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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