Merger Arbitrage Spread List January 27, 2019

• There were no closed deals from last weeks T20 list
• The was one failed deal from last weeks list as Avista Corp. (AVA) and HydroOne finally officially called off the planned merger. AVA is now due to receive a $103m termination fee.
• The one stock to drop out of last weeks list is the aforementioned Avista Corp. (AVA).

The Present 

• The T20 replacement this week is Navigators Group (NAVG) 
• There were no new cash deals announced during the week that made our list
• In the absence of (AVA) the largest (simple) spread this week is Pacific Biosciences of California (PACB), offering a return of 11.58%. The stock declined $0.17 this week following last weeks rebound. During the past week two filings were made. Form S-8 showing detailing information on the issuance of new shares as part of an employee benefit plan. But more importantly the 8-K showing the results of the special shareholders meeting held on the 24th January. As expected, shareholders voted overwhelmingly to accept the offer from Illumina, Inc. and FC Ops Corp. The market was less than impressed and punished the stock as the delay caused by a second request for information combined with the government shutdown adds to the uncertainty regarding the anticipated closing date. Redhat (RHT), which increased by almost a dollar during the week sees its spread narrow to 7.65%. If this rise continues at this pace we will be looking to take some money off the table and redeploy the capital elsewhere due to the extended time frame of expected completion. Returning entrant Navigators Group (NAVG), offers 0.47% (expected closing 6/30), we do not currently hold a position in this stock.
• The average spread for the entire T20 list is a 2.26% return which continues to decrease as the market continues its recovery and is below the recent historical average. Our analysis here is the same as last week. This reflection of the performance of the broader market during the week is making it difficult to justify the level of return for the level of risk/volatility currently available in the market arbitrage space at the portfolio level. Some individual deals however do offer attractive returns especially those whose closure may occur sooner than the market anticipates. Traders are advised to take some money of the table where possible. A broader market sell off can still occur as the problems in the global political space remain unresolved. Tensions between the US & China may be resolved sooner than we think but any hiccups along the way could cause jittery investors to panic and drag the entire market lower regardless of strategy or stock specific circumstances. Be careful using leverage in these situations and maintain at least some dry power for future opportunities.

The Future

• IDTI reports earnings after the close on Monday and ESL is expected to announce it’s results on Thursday after the market close
• TLP is expected to go ex-div on January 30th paying $0.805.
• Any deal announcements relating to this weeks T20 list will be announced in real time, most often via out twitter feed @MergeArbLimited.