This is the weekly Merger Arbitrage Performance Review – January 10, 2021. This report focusses on the performance of the FIT, NGHC, RP & SOGO merger arbitrage spreads during the period 4th January – 8th January. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 3rd January, 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 10, 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 10, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.23% | SPY | 1.97% |
| Index Dispersion | 0.87% | VIX | 5.23% |
| Winners | 11 | MNA | 1.02% |
| Losers | 8 | ||
Market Performance Review
Equity markets began the new year in the same fashion with which they finished the last. An impressive start was made as Democrats seized control of Government following their narrow victory in the Georgia senate run-off elections. Markets are now expecting a generous stimulus package once president elect Joe Biden takes office. However, this funding may come at the expense of subsequent corporate tax hikes further down the road
Covid fatalities continue to mount and the most recent jobs report was disappointing, but the markets continue to move forward as more vaccine alternatives become available across the globe. By the close on Friday, the SPDR S&P 500 ETF (SPY) index fund had moved higher by 1.97%. The VIX unsurprisingly moved lower and by the end of the week was down by 5.23%. The IQ Merger Arbitrage ETF (MNA) also had a positive week. Parsley Energy (PE) was the main driver of this performance following an unexpected Saudi oil production cut causing many energy to rise significantly. By the close on Friday the ETF was showing a gain of 1.02%.
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 to the recoveries in both Fitbit (FIT & Sogou (SOGO) which had suffered in recent weeks.
There was one significant offer which closed during the week. The Tiffany saga finally came to a close although this spread had previously been removed from our index. Whilst Acacia Communications (ACIA) claimed SAMR approval had not been granted, Cisco (CSCO) stated otherwise and has since been granted a temporary restraining order in order to be able to complete the deal. More spread details about this week’s index list can be found on our Spread Tracker page.
The T20 index closed up for the week by 0.23%. The index was comprised of a complete complement of 20 merger arbitrage cash deals. The winners outpaced by the losers by a margin of 11 to 8 with 1 non-mover. The standard deviation of the individual index returns was 0.87%. This figure is below both the short term average and the medium term average.
Merger Arbitrage Performance Review - January 10, 2021
Fitbit (FIT)
Topping the leaders this week was Fitbit (FIT). We have previously reviewed the Australian Competition and Consumer Commission rejection of Google’s (GOOG,GOOGL) antitrust concessions for the $2.1B acquisition. Although it was widely discussed about the ability of the Australians to derail the deal, it is only now the stock price has started 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. However, in light of a strong underlying stock market, investors are prepared to step in and take advantage of the wide (comparatively) spread.
The current offer is for $7.35 per share from Google. Despite no new deal news or announcements made during the week, by the close on Friday, the stock finished higher for the week by $0.17, at $6.97, a rise of 2.50%. This now leaves the simple spread at 5.45%.
SOGOU (SOGO)
Similar to Fitbit, following a number of weekly declines, Sogou also rebounded this week. Benefitting from a rising market without any new deal news or announcements the stock became the second best performer in our index of cash merger arbitrage spreads.
We had previously speculated the prior decline could in fact turn out to be a great buying opportunity. However, our own purchase, with the benefit of hindsight has turned out to be a little premature. Once again, we caution traders not to be attracted to the large spread without appreciating the risks involved in investing in this firm. By the close on Friday, the stock had finished higher by $0.14, at $8.29, a rise of 1.72%. This leaves the simple spread at 8.56%, and still the largest in the index.
National General Holdings (NGHC)
Making a rare appearance in the largest movers this week is National General Holdings (NGHC). Despite there not being any significant deal news, it appears by the stock price movement during the week, this deal is on the verge of closure. We did not have a position in this stock.
By the end of the week, the stock had finished up $0.32 at $34.50, a rise of 0.94%. This leaves the simple spread at precisely 0.00%. We expect an announcement in the very near future.
RealPage (RP)
RealPage was the worst performer in our index this week. We spoke at length about Real Page last week in an article published on Seeking Alpha. We concluded the article with
For these reasons, we believe there is a very high chance of this deal being completed with a small chance of an improvement in the current offer. Following the recent fallback in this stock we are seriously looking at opening a position in this spread.
During the previous week we have seen the stock decline again as it was announced RP was buying WhiteSky Communications. In light of this movement We initiated a small position in the low $86’s.
By the end of the week, the stock had finished down $0.78 at $86.46, a fall of 0.89%. This leaves the simple spread at 2.65%.
