This is the weekly analysis of Merger Arbitrage Spread Performance April 12, 2020. This reports covers the top 20 investable US cash based merger arbitrage spreads for the week 6th April – 9th April. The first section of this report discusses the biggest winners & losers from the T20 portfolio. Then we detail the performance of the overall portfolio. To conclude, we compare this performance with the broader market and the IQ Merger Arbitrage Exchange Traded Fund – MNA. The information contained in this weekly analysis & review of Merger Arbitrage Spread Performance April 12, 2020 assists traders in their merger arbitrage investments and trading.
In this report, Merger Arbitrage Limited reviews a selection of merger and acquisition deals from the T20 Index. A list of the largest pending cash merger arbitrage spreads available as at 5th April. Investors and traders can follow our latest Top 20 (T20) list each week here. Regular followers will already be familiar with our rules for inclusion on the T20 Index. Click this link for an analysis of the spread performances from the previous week.
Merger Arbitrage Portfolio Performance
Cash merger arbitrage spreads took off during the past holiday shortened trading week as good news (or at least signs of) arrived from multiple sources. Following last weeks decline the T20 Index bounced back in impressive fashion in what is becoming a commonplace phenomena nowadays. All significant movers went in the same direction pointing to the stock markets uncanny ability to locate a source of optimism within a sea of despair. Market wide variables ruled over deal specific factors. This time out, the winners comprehensively triumphed over the loser by a score of to 20 to 0 with 0 non-movers. The index was comprised of a full selection of 20 merger arbitrage deals and 0 cash positions. The index closed up for the week by 7.79%. This gain was primarily attributable to … (drum roll please!) the advancement in RRGB! Whilst also accompanied by TGE, WMGI, & FIT. The standard deviation of the individual index returns for the past week set a new all-time high of 13.04%. Clearly, these figures remain above all historical averages.
Additional live news updates for these deals can be found on our customized T20 Index news feed. Even more specific merger details & news can be found on the dedicated news and merger information pages for recently announced deals including WUBA, AON, TGNA, & RRGB.
MNA SPY VIX Returns Table 20200410
| The Market | Merger Arbitrage Limited | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| SPY | 12.20% | T20 Index | 5.79% |
| VIX | 10.96% | Index Dispersion | 13.04% |
| MNA | 3.21% | Winners | 20 |
| Losers | 0 | ||
| Week Ending | Thursday April 9, 2020 (Holiday shortened week) | ||
Market Performance
The IQ Merger Arbitrage ETF, MNA, started off on the right foot at the beginning of the week and embarked upon a rally that would see the ETF rebound stronger than any of the most optimistic forecasts. Despite trading volumes remaining subdued, the week long rally continued for the entire holiday shortened week and saw the MNA post one of its most impressive weekly returns in recent memory. By the close on Thursday, the IQ Merger Arbitrage ETF was up 3.21%.
The broader market begun the week in an equally sprightly mood. With the possible rate of new infections showing signs of slowing and the Fed announcing additional actions to support the domestic economy, investors decided, as far as the markets were concerned, that a corner had been turned. However, unemployment claims continue to skyrocket. The future effect of what will surely be a significant slowdown in consumer spending will be difficult to call both in terms of length and depth. By the end of the week, the SPDR S&P 500 ETF, SPY, managed to finish gain 12.20%. Its largest weekly gain in 45 years. The VIX unsurprisingly fell from its recent highs. Although by Friday the index had only declined by 10.96%.
The effect of COVID-19 in New York continues to be particularly devastating although hopefully we may be nearing the peak. Restaurant and travel stocks especially continue to be particularly hard hit which we discuss at greater length in our new article Covid-19 and Merger Arbitrage Trading.
In light of popular feedback from previous postings (thank you very much) we shall continue to repeat the following section from our previous analysis
It is important for traders of merger arbitrage to consider how each of their individual positions will be affected by a continued spread of the coronavirus.
- How can this affect the granting of regulatory approval in China?
- Are delays inevitable?
- Will a slowdown in the global economy lead acquirers to rethink their acquisition strategy?
- Also important is that merger arbitrage stocks which were supported by higher floor prices may now have some of that protection removed.
Merger Arbitrage Spread Performance April 12, 2020
Red Robin Gourmet Burgers (RRGB)
One thing is for certain, during times of extreme market volatility and uncertainty, Red Robin Gourmet Burgers will make an appearance in the largest movers of cash merger arbitrage spreads as followed by Merger Arbitrage Limited. Following last week’s bout of profit taking it might come as no surprise to readers of this weekly column that RRGB has once again topped the list. This weeks wild fluctuation however was based more on fact and reasoning than previous weeks although not directly related to the takeover approach from Vintage Capital.
During the week, Paul J.B. Murphy III, Red Robin’s President and Chief Executive Officer released a statement reviewing the company’s actions during this difficult time and the announcement of the upcoming annual general meeting to be held at 8:00 a.m. MDT, on Thursday May 21, 2020. Mr. Murphy stated
We are encouraged by our continuing off-premise sales momentum, which has more than doubled over the past two weeks compared to our trends before the impact of COVID-19. This will help mitigate the decline in comparable restaurant revenues due to the closure of dine-in services at substantially all Red Robin-operated restaurants and enable us to focus on optimizing the execution of our off-premise channels both during and following the crisis.
This was a statement investors were waiting to hear and the stock price reacted accordingly. Mirroring the broader market performance during the week, the stock closed at the end of Thursday up $4.44 at $11.81, a drop of 60.24% that now leaves the simple spread at a mere 238.70%. This is against the original bid from Vintage Capital for $40 per share. As we reported previously, we expect takeover chatter to take a backseat for the near future as the company works in unison with Vintage Capital to ensure its survival. We continue to hold our position.
Tallgrass Energy (TGE)
Tallgrass Energy was also a significant gainer during the week. Despite no new deal news being announced the stock continues its volatile run. The decline in the oil price following the inability of OPEC to impose universal productions cuts does not seem to have affected the stock price. By Friday’s close, the stock was up $1.76 at $18.54, a rise of 10.49%. We finally managed to take a small position in this stock during the in accordance with our previous commentary. This deal has an expected completion date in the second quarter of the year.
Wright Medical (WMGI)
Wright Medical was also amongst the biggest winners this week. The stock had recovered from its mid-March lows to come within 5% of the offer price from Stryker. Recent weakness has now been reversed although the stock is still offering 9.74%. Despite no new deal news being announced during the week, other than an SEC filing offering the possibility of a virtual special meeting in light of the coronavirus pandemic, the stock was up $1.70 at $28.02, a rise of 6.46%. The extraordinary shareholder meeting is currently scheduled to be held on April 24, 2020. As things stand, we are yet to initiate a position in this stock.
