This is the weekly Merger Arbitrage Performance Review – August 23, 2020. This report focusses on BREW, SINA, TIF & VAR arbitrage spreads during the period 17th August – 21st August. These stocks are selected from the top 20 investable US cash based merger spreads, a list of the largest pending cash merger arbitrage spreads available as at 16th August compiled by Merger Arbitrage Limited. 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.
Following the performance table of investment returns, the first section of this report compares and reviews the performance of the broader market with the MNA. Then we more specifically discuss the performance of the overall T20 Index. The next sections detail the biggest winners & losers from the T20 portfolio followed by the conclusion. The information contained in this weekly Merger Arbitrage Performance Review – August 23, 2020 assists traders in making merger arbitrage investments and event driven trading decisions. Click this link for the archive of spread performance reviews from previous weeks.
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 factsheet pages including popular deals such as TDOC–LVGO, CVX–NBL, FIT & TIF.
Table of Returns
Merger Arbitrage Performance Review - August 23, 2020
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | (0.42)% | SPY | 0.77% |
| Index Dispersion | 2.72% | VIX | 2.22% |
| Winners | 10 | MNA | 0.84% |
| Losers | 6 | ||
Market Performance Review
Domestic economic data yet again continues to underscore stock market performance. The recovery can now be considered complete (in stock terms) as the broader market posted new all-time highs during the past week. Corporate profits are moving in the right direction, existing home sales have improved and even some larger retailers have noted an uptick in activity.
However, this upbeat display obscures the unevenness of the recovery in the economy. As state of affairs which is now likely to be the new permanent normal. So you’d better get used to it. Tech continues to dominate and the rise of remote commerce has replaced significant parts of industries requiring more personal interaction. Unemployment continues to remain high reminding us of the importance to be aware of the effects of any resolution to the stimuls debate.
By the close on Friday, the SPDR S&P 500 ETF (SPY) index fund was higher by 0.77%. However, during the week, the VIX also increased and by Friday had risen by 2.22%. The IQ Merger Arbitrage ETF (MNA) posted an impressive gain, outperforming the S&P 500 for the first time in recent memory and finished in positive territory for the week. NETENT AB & Qaigen were the biggest gainers in the index. By the close on Friday, the IQ Merger Arbitrage ETF was up by 0.84%.
Merger Arbitrage Portfolio Performance Review
Cash merger arbitrage spreads, in contrast to the broader market took a breather this week. This was in large part due to the decline in RRGB and was despite a majority of spreads producing a positive performance.
The outlook for merger arbitrage however continues to improve as new deals were announced during the week which made our T20 index. Along with additional stock deals and a handful of smaller acquisitions, it apprears deal makers are executing plans previously drawn up before the pandemic thus executing a level of pent -up demand now that the easing of restrictions has permitted them to do so. In addition, bio-pharma has become a hot sectors with recent takovers of MNTA and VAR being announced.
The T20 index closed down for the week by a 0.42% with RRGB providing a significant decline as the restaurant sectors continues to struggle. The index was comprised of an incomplete complement of 16 merger arbitrage cash deals. The winners beat the losers by a margin of 10 to 6 with 0 non-movers. The standard deviation of the individual index returns was 2.72%. This figure is below both the short term average but inline with the medium term average figure.
Merger Arbitrage Performance Review - August 23, 2020
Craft Brew Alliance (BREW)
BREW continued its strong performance this week. Despite there not being any new deal news, the stock has continued to benefit from a previous CTFN story released on the previous Friday suggesting Anheuser-Busch InBev’s (BUD) acquisition is likely to win approval on consent decree terms. The report claimed
It looks like Hawaii’s attorney general may have given up opposition to the deal
The stock had been under pressure following the proposed spin-off of the KONA brand and Hawaiian-based operations in order to pacify regulators. The stock moved up an additional $0.29 or 1.86% to $15.89. This still leaves a reasonably attractive simple spread of 3.84% should the report from CTFN turn out to be true. The deal currently has a tentative expected closing date in the third quarter of 2020 although this is dependent of the divesture. We maintain our position in the stock for the time being but will be tempted to take some money off the table if the stock moves higher without any additional confirmation on the progress of the asset disposal.
SINA Corporation (SINA)
In a similar vein, Sina also moved higher this week on no new deal news and was the second largest gainer in the index last week. The special committee assembled by SINA to evaluate the non-binding proposal from New Wave, a company incorporated in the British Virgin Islands is yet to make its final judgement. It is as yet unknown when, if any details of these findings will be made public. In the meantime the stock has drifted higher during the week in line with the broader market recovering from a previous decline. The stock finished up $0.43 at $40.03, a rise of 1.09% leaving the simple spread at 2.42%. We are in no rush to open a position in this stock.
Tiffany & Co. (TIF)
Tiffany & Co. also showed itself to be one of the best performing cash merger arbitrage stocks during the week. On Thursday, the company announced it was continuing to pay its current dividend of $0.58 and will go ex-div on September 18. Along with announcing an extension to the revamp of its flagship store, the company also issued a response to the Second Circuit Court of Appeal’s ruling reversing summary judgment in the company’s ongoing trademark infringement and counterfeiting lawsuit against Costco over engagement rings. Additionally, Tiffany & Co. plans to report its financial results for the second quarter ended July 31, 2020 on August 27, 2020 by issuing a news release.
By the close on Friday, the stock had risen $1.01 or 0.81% to $126.01. The deal is now offering a simple spread return of 7.13%. This marks a solid recovery by the stock following the Women’s Wear Daily report of the LVMH board of directors meeting to discuss the takeover. The regulatory risk would remain present as ever and it is in this area that traders should have focusing their analysis.
We are happy with our position in Tiffany and will continue to hold. The current spread is primarily a product of the pending regulatory clearance requirements and the time required to complete the deal. The expected completion date is currently September 30, 2020. Should this be the case, stockholders will be entitled to receive the aforementioned dividend payment of $0.58. Traders are advised to pay close attention to this closing date and calculate the spread both with and without the dividend. On current analysis, we still believe this merger spread to be attractive.
Varian Medical (VAR)
Varian Medical makes a debut appearance in our analysis this week. Before we issue a full report on this deal, we’ll recap briefly on the recent performance of this spread. In a relatively quiet week (news wise), the stock was lower by $0.65 for the week, a decline of 0.38% to $172.50. This leaves the simple spread at 2.90%. This recently announced deal appears to have suffered from a (very) minor bout of profit taking. The floor price is calculated to be around $130 and with a handful of other options to choose from in the merger arbitrage space, there is not the support for this deal, at this spread level that there might have been just a few weeks previously. We shall continue to monitor this situation.
