This is the weekly Merger Arbitrage Performance Review – January 17, 2021. This report focusses on the performance of the FIT, MTSC, SINA & AJRD merger arbitrage spreads during the period 11th January – 15th January. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 10th 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 17, 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 CHNG, AJRD, TLRY–APHA, AZN–AXLN, WDR & PNM.
Table of Returns
Merger Arbitrage Performance Review - January 17, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.23% | SPY | 1.46% |
| Index Dispersion | 1.33% | VIX | 12.89% |
| Winners | 8 | MNA | 1.40% |
| Losers | 10 | ||
Market Performance Review
Equity markets retreated this week following an explosive start to the new year. Concerns over the state of the job market and the lackluster start to the vaccination program have weighed on the markets. The stimulus package of $1.9bn as promised by President elect Joe Biden did little to improve market sentiment as the news was already priced in. However, the increased level of vaccinations globally are encouraging and reintroduce a hope for normality in the near future despite Covid fatalities continuing to mount.
By the close on Friday, the SPDR S&P 500 ETF (SPY) index fund had moved lower by 1.46%. The VIX unsurprisingly moved higher and by the end of the week was up by 12.89%. The IQ Merger Arbitrage ETF (MNA) also had a negative week. Significant declines in Grubhub (GRUB) and Xilinx (XLNX) were the main drivers of this performance. By the close on Friday the ETF was showing a loss of 1.40%.
Merger Arbitrage Portfolio Performance Review
Cash merger arbitrage spreads as measured by the Merger Arbitrage Limited T20 Index however advanced during the week. The identical gain to the prior week was due to the closure in Fitbit (FIT) which leapt over 5% & the advancement in MTS Systems (MTS) which has now risen above its offer price.
There was one significant offer which closed during the week. The aforementioned Fitbit deal finally comes to an end. Thus, along with Tiffany, removes two of the “old guard” of the T20 portfolio. Whilst Acacia Communications (ACIA) had previously walked away from the Cisco deal citing SAMR approval had not been granted, Cisco (CSCO) subsequently raised the offer enabling Acacia’s re-entry into the index. 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. Despite the positive performance, the winners were outpaced by the losers by a margin of 8 to 11 with 2 non-movers. The standard deviation of the individual index returns was 1.33%. This figure is below the long term average but inline with the lower medium term average.
Merger Arbitrage Performance Review - January 17, 2021
Fitbit (FIT)
Topping the leaders this week was Fitbit (FIT). Quite unsurprisingly following the announcement of the successful closure of the deal Fitbit was the subject of a trading halt. At the offer price of $7.35, the return on the stock at the time of the announcement was over 5%.
However, some confusion remained as to the validity of the claim. Reuters had claimed the DoJ was still in the process of ruling on the deal. At time of print, regulatory clearance from the Japanese competition authority the Fair Trade Commission (FTC) is also still required. In the meantime, Nasdaq has halted trading and Fitbit itself has filed a “25 – Notification of the removal from listing and registration of matured, redeemed or retired securities” form with the SEC. So brings an end to another of the long standing constituents (along with Tiffany & Co.) of the T20 Index.
We are yet however to receive payment for our holding. But, assuming the expected offer price is paid in full, the stock finished higher for the week by $0.38, a rise of 5.45%.
MTS Systems (MTS)
Making its debut appearance in the largest movers this week is MTS Systems (MTS). Despite there not being any significant deal news, it appears judging by the stock price movement during the week, investors are hoping for an improvement on the current deal terms.
At present, the deal is an all cash offer of $58.50 from Amphenol (APH). Since the announcement on December 10, 2020, the stock has traded as high as $59.90. During that time however, no additional bidder has come forward. As the stock was trading over the offer price, it was not eligible for our Index and we do not currently have a position.
By the end of the week, the stock had finished up $0.43 at $58.85, a rise of 0.74%. This leaves the simple spread at negative (0.59%).
SINA Corporation (SINA)
Sina was also a strong performer this week. Despite no new deal news to report the stock became the worst performer in the index last week. Previously, New Wave, in a “going private” transaction, had increased the offer price from $41 per share to $43.30. This had given the stock some additional breathing room in which to advance.
Speculating on a potential thawing with relations with China as Joe Biden ascends to the Oval office, traders continued to buy into the deal. However, the hope that this may speed up the clearing of regulatory hurdles has begun to wane and the delisting of certain Chinese telecom stocks continues to be a drag on other stocks based in the region.
By the end of the week the stock finished down $0.59 at $41.74, a fall of 1.39%. This leaves the simple spread at 3.74%. We maintain our small positon in this stock and await further news.
Aerojet Rocketdyne (AJRD)
Aerojet Rocketdyne is another debutant in the leaders and laggards this week. Albeit at the wrong end of the spectrum. Traders had once again been hoping for a higher offer as the stock traded close to its offer price. But following a note from Jefferies suggesting this was unlikely, the stock has continued to drop back.
However, continued interest in the sector, especially following the announcement of the ARK Space Exploration ETF (ARKX), may reignite interest in Aerojet Rocketdyne and possibly lead to a higher offer. Following this week’s drop, we have initiated a small position in this stock.
By the end of the week, the stock finished down $0.23 at $52.46, a fall of 0.63% against an offer price of $51. This deal also includes a special dividend payment of $5.00. This leaves the simple spread at 7.46%.
