This is the weekly Merger Arbitrage Performance Review – January 3, 2021. This report focusses on the performance of the UROV, HMSY, WDR, & FIT merger arbitrage spreads during the period 28th December – 31st December. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 27th December, immediately prior to the analysis period. Investors and traders can follow the latest Top 20 (T20) list each week compiled by Merger Arbitrage Limited to review this week’s largest pending cash merger arbitrage spreads. Regular followers will already be familiar with our rules for inclusion in 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 – January 3, 2021 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 AJRD, TLRY–APHA, AZN–AXLN, WDR, PNM, FIT & TIF.
Table of Returns
Merger Arbitrage Performance Review - January 3, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.07% | SPY | 1.32% |
| Index Dispersion | 0.41% | VIX | 5.67% |
| Winners | 10 | MNA | 0.23% |
| Losers | 9 | ||
Market Performance Review
Another holiday shortened trading week, low trading volume and more depressing Covid news – it can only mean one thing…The broader market hitting new all-time time highs to finish the year with a bang. Stimulus checks have finally been agreed upon and last minute Brexit negotiations finalized a deal which fostered a positive mood as the new year was ushered in. Jobless claims also came in below expectations which further encouraged investors into the market.
By the close on Thursday, the SPDR S&P 500 ETF (SPY) index fund had moved higher by 1.32%. The VIX also moved surprisingly higher by the end of the week. By Thursday, the index was higher by 5.67%. The IQ Merger Arbitrage ETF (MNA) also had a positive week. Maxim (MXIM) advanced whilst supported by the natural resource stocks CXO, PE & WPX. By the close on Thursday the ETF was showing a gain of 0.23%.
Merger Arbitrage Portfolio Performance Review
Cash merger arbitrage spreads as measured by the Merger Arbitrage Limited T20 Index also advanced during the week. The small gain was due in large part to the advance in Waddell & Reed Financial (WDR) and was despite the continuing uncertainties regarding the Google (GOOG, GOOGL) acquisition of Fitbit (FIT) .
There was one offer which closed during the week. Taubman Centers (TCO), which was only announced in November. Acacia Communications (ACIA) was also expected to close by the end of the year but has since been delayed having not received SAMR approval. Existing deals entering the list this week have improved potential returns to the index but also extend the expected completion date. More details about this week’s index list can be found on our Spread Tracker page.
The T20 index closed up for the week by 0.07%. The index was comprised of a complete complement of 20 merger arbitrage cash deals. The winners outpaced by the losers by a margin of 10 to 9 with 1 non-mover. The standard deviation of the individual index returns was 0.41%. This figure is below both the short term average and the medium term average figures and possibly one of the lowest figures ever recorded.
Merger Arbitrage Performance Review - January 3, 2021
Waddell & Reed Financial (WDR)
Waddell & Reed Financial reverses its previous fortunes during the week to become the weekly star performer in the index. Having advanced $0.32, or 1.27% during the week, the stock now trades at $25.47. Despite the offer being $25 per share, the merger spread stands at 0.12% because of the dividends of $0.50 are expected to be paid.
There was no news announced during the week, not even any whisper of a higher offer. The current spread then is not enough to get our mouths watering at this stage. We are however a little surprised by the speed of this latest rise. The deal is not expected to close until Q2, 2021. We shall be watching for any further developments and expect an update soon.
HMS (HMSY)
Also performing strongly during the week was HMS Holdings Inc. A recently announced takeover that sees Gainwell offer $37 per share for the health care cost containment solutions provider. During the week, the firm filed a DEFA14A with the SEC detailing the merger agreement. Following this filing, the stock came within $0.05 of the offer price. By the close on Thursday, the stock had settled at $36.75, up $0.24 or 0.66%. This leaves the simple spread at 0.68%.
The expected completion date is given as H1, 2021 although the recent filing does state
the Merger and the other Transactions may be abandoned at any time prior to the Effective Time … if the Closing shall not have occurred on or before 5:00 p.m. (Eastern time) on June 20, 2021, (the “End Date”); (Drop-dead date)
We do not currently have a positon in this stock and at these levels it is unlikely will shall initiate one in the near future. However, we shall continue to monitor the situation and may buy on weakness should the opportunity arise.
Urovant Sciences (UROV)
Urovant Sciences (UROV) continues its turbulent ride between best and worst performing stock in our index. This week, UROV flips back into the leaders section as the stock moves back to within touching distance of the $16.25 offer price. The only news during the week was from a PREM14A filing with the SEC in which the company announced
NOTICE IS HEREBY GIVEN that a Special General Meeting of Shareholders of Urovant Sciences Ltd., which we refer to as “Urovant,” will be held on [●], 2021 at [●] (Pacific Time) in a virtual meeting format at [●] to consider and vote upon:
Note that this is a preliminary document and the actual date will be confirmed shortly. More importantly however in the subsequent statement regarding regulatory approval
Regulatory Approvals
Urovant and the Sumitomo Group do not anticipate requiring any material regulatory approvals in connection with the proposed Merger, other than the application to the Registrar of Companies in Bermuda in accordance with Section 109 of the Bermuda Companies Act.
By the end of the week, the stock had finished up $0.09 at $16.13, a rise of 0.56%. This leaves the simple spread at 0.74%. With such a small return on offer, we are reluctant to open a positon in this stock at this time.
Fitbit (FIT)
Topping the laggards (again) was Fitbit (FIT). We previously commented on Fitbit as the Australian Competition and Consumer Commission rejected Google’s (GOOG,GOOGL) antitrust concessions for the $2.1B acquisition. Although there has been much debate on the ability of the Australians to derail the deal, the stock price is yet to recover.
In the meantime, regulatory clearances from the DoJ in the U.S. and the Japanese competition authority the Fair Trade Commission (FTC) are still required. Decisions from these authorities are expected shortly and it is thought these decisions are the ones which will dictate the final outcome of the deal.
Google had previously offered concessions including agreeing not to use the health data for advertising and behaving in certain ways toward competitors that would ensure competition wasn’t stifled. Although similar concessions worked with the European Union Authorities, the Australian regulators were not convinced.
We still think it is unlikely that Google has come this far to give up on this deal. As conditional clearance has already been granted in the EU, we would expect to see similar decisions announced in the U.S. and Japan. If additional negotiation does take place however, it will most likely cause a delay in the expected deal closing timeline.
Nevertheless, we are happy to continue holding this stock. We have made a small addition to our position keeping within our risk management principles and desired diversification levels. The current offer is for $7.35 per share from Google. By the close on Thursday, the stock finished lower for the week by $0.04, at $6.80, a fall of 0.58%. This now leaves the simple spread at 8.09%.
