Merger Arbitrage Mondays – Another One Bites The Dust

Merger activity came to a halt last week with no new deals announced, four deals closing and one deal terminated.

This is the second time in four weeks no new deals were announced. We wrote the following three weeks ago,

If the economic situation deteriorates further and impacted industries are not able to benefit from the massive $2 trillion stimulus package that has now passed both houses of congress, there is a good possibility that several of these deals will fall apart.

Studying the material adverse change (MAC) clause of a merger agreement may not be sufficient, as acquirers could choose to walk away from deals and take their chances in the courts. Paying attention to the kind of acquirer, the macro environment and industry specific issues is very important at this juncture.

Two deals have fallen apart since then and the latest deal to fall victim to the COVID-19 pandemic was the acquisition of Stein Mart (NASDAQ:SMRT), which had been on our list of top 10 deals since the second week of March 2020. The company along with Kingswood Capital Management mutually terminated their merger agreement and neither party will pay a termination fee.

While spreads have narrowed considerably over the last four weeks, there are several that offer very attractive opportunities. However, the risk of some of these deals falling apart remains high if the company being acquired is in the hospitality, retail or travel industries.

Weekly Spread Changes:

The table below shows weekly spread changes between April 10, 2020, and April 17, 2020.

Deal Statistics:

Total Number of Deals Closed in 2020 49
Total Number of Deals Not Completed in 2020 5
Total Number of Pending Deals
Cash Deals 28
Stock Deals 25
Stock & Cash Deals 5
Special Conditions 4
Total Number of Pending Deals 62
Aggregate Deal Consideration $531.19 billion

Deal Updates:

  1. On April 16, 2020, China’s antitrust authority announced a conditional approval for Nvidia’s (NASDAQ:NVDA) highly anticipated acquisition of Mellanox (NASDAQ:MLNX).

Closed Deals:

  1. The acquisition of Jumei International Holding Limited (JMEI) by Super ROI Global Holding Limited and Jumei Investment Holding Limited on April 15, 2020. It took 50 days for this deal to be completed.
  2. The acquisition of Cypress Semiconductor Corporation (CY) by Infineon Technologies AG (OTCQX:IFNNY) on April 16, 2020. It took 319 days for this deal to be completed.
  3. The acquisition of Changyou.com Limited (CYOU) by Sohu.com Limited (NASDAQ:SOHU) on April 17, 2020. It took 84 days for this deal to be completed.
  4. The acquisition of Tallgrass Energy (TGE) by Blackstone Infrastructure Partners on April 17, 2020. It took 122 days for this deal to be completed.

Terminated Deals:

  1. On April 16, 2020, Stein Mart and Kingswood Capital Management announced that the parties have mutually agreed to terminate their merger agreement. The termination is in response to the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic.

Top 10 deals with largest spreads:

Symbol AnnouncedDate AcquiringCompany ClosingPrice LastPrice ClosingDate Profit AnnualizedProfit
CDOR 07/22/2019 NexPoint Hospitality Trust (N/A) $11.10 $3.59 06/30/2020 209.19% 1060.49%
SDI 04/08/2020 Turning Point Brands, Inc. (NYSE:TPB) $20.21 $11.48 06/30/2020 76.00% 385.29%
GNW 10/23/2016 China Oceanwide Holdings Group Co., Ltd. (N/A) $5.43 $3.51 06/30/2020 54.70% 277.30%
YTRA 07/17/2019 Ebix, Inc. (NASDAQ:EBIX) $1.76 $1.21 06/30/2020 45.45% 230.43%
DLPH 01/28/2020 BorgWarner Inc. (NYSE:BWA) $12.23 $8.64 12/31/2020 41.58% 59.29%
CETV 10/27/2019 PPF Group N.V. (N/A) $4.58 $3.46 06/30/2020 32.37% 164.10%
TCO 02/10/2020 Simon Property Group, Inc. (NYSE:SPG) $52.50 $41.02 06/30/2020 27.99% 141.88%
FG 02/07/2020 Fidelity National Financial, Inc. (NYSE:FNF) $12.50 $10.16 09/30/2020 23.03% 51.26%
FSBC 12/19/2019 Evans Bancorp, Inc. (NYSEMKT:EVBN) $17.80 $14.5 06/30/2020 22.76% 115.37%
CZR 06/24/2019 Eldorado Resorts, Inc. (NASDAQ:ERI) $9.90 $8.13 06/30/2020 21.79% 110.45%

The top 10 deals in our list of active deals continue to trade with spreads over 20%. Even though we saw another deal terminated last week, it was good to see four deals being completed.

Disclosure: I am/we are long MLNX. 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 hold a long position in Mellanox Technologies (MLNX). 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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