Merger Arbitrage Performance Review – June 21, 2020

Tech Data Corporation (TECD)

A strong rise on Monday was enough to propel Tech Data Corporation to the top of the best performing merger arbitrage spreads last week. The move comes despite no official deal updates or announcements and was fueled by trading volume four times the recent average. Unlike alternative merger arbitrage spreads, The company had recently announced a solid set of results which had placated investors fears of the feasibility of the deal. However, this latest move seems to indicate an announcement of some sort is imminent.

Movements of this nature make merger arbitrage trading a treacherous endeavor at the best of times. Let alone during unprecedented economic upheaval in the midst of a pandemic. It is not our position to suggest a key piece of information is this puzzle is already known by a selected few. However, as movements such as these do occur, it highlights the importance of doing one’s previous research on a deal and being able to take an objective view of the situation whilst not getting caught up in day to day volatility. This allows traders to identify deals trading at attractive spreads before the price moves, or possibly be manipulated in a way that is unfavorable to traders. Thus avoiding trading based upon knee-jerk reactions.

By Friday the stock finished the week up $6.76 at $142.99, a rise of 4.96%. The simple spread now at 1.41%. The expected closing date as originally forecast was Q2 2020. The latest date of which is almost upon us. We therefore expect an announcement soon possibly related to the regulatory clearance in Australia. We had previously stated we may look to initiate a position in the near future but decided to hold off until after earnings. In light of this and the advancement made in the stock, we shall now wait for a pull back before entering a position.

Fitbit (FIT)

Despite some negative deal news during the week Fitbit still managed to put in the second best positive performance amongst merger arbitrage spreads last week. The news centered around the launching of an investigation by the Australian regulators into whether it will give Google access to too much of peoples data and harm competition. However, the most significant news is the setting of a July 20 deadline by the EU antitrust regulators as to whether to clear Alphabet Inc. owned Googles $7.35 per share takeover offer.

Although this doesn’t offer any clues as to the outcome, it does provide additional clarity as to the closing timeline to the deal. For that reason, by the end of the week the stock finished up by $0.27 at $6.38, a rise of 4.42% leaving the simple spread at 15.20%. We are in no rush to sell our position and will most likely continue to hold even if the deal does take longer to close than originally forecast.

Tiffany & Co. (TIF)

Tiffany & Co. also performed well during the week. This spread has widened recently as speculation continues as to whether LVMH are looking to renegotiate the deal. However, the basis for this analysis appears sketchy at best. During the week, the stock recovered some lost ground as investors look to pick up a bargain and turn a quick profit. We will maintain our small positon which we recently entered into. At the close on Friday, the stock had risen $2.34, or 1.97% to $120.88, the deal is now offering a simple spread return of 11.68%.