This is the weekly Merger Arbitrage Performance Review – January 24, 2021. This report focusses on the performance of the SINA, SOGO, HMSY & UROV merger arbitrage spreads during the period 19th January – 22nd January. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 17th 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 24, 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 LITE–COHR, CHNG, AJRD, TLRY–APHA, WDR & PNM.
Table of Returns
Merger Arbitrage Performance Review - January 24, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.47% | SPY | 1.91% |
| Index Dispersion | 0.96% | VIX | 9.98% |
| Winners | 13 | MNA | 0.45% |
| Losers | 4 | ||
Market Performance Review
Equity markets closed within a whisker of all-time highs during the holiday shortened week. Continued squabbling over the size of the most recent stimulus package was always expected with Republicans voicing concerns over the size of the national debt. Covid numbers remain stubbornly high and fears continue to grow as to the severity of the recently discovered mutations of the virus. However, with strong levels of housing starts and what looks like to be a positive start to earnings season the markets moved forward.
By the close on Friday, the SPDR S&P 500 ETF (SPY) index fund had moved higher by 1.91%. Accordingly, the VIX responded by moving lower and by the end of the week was down 9.98%. The IQ Merger Arbitrage ETF (MNA) also had a positive week. Significant gains in Grubhub (GRUB) and Xilinx (XLNX), both reversing the previous week’s losses, were the main drivers of this performance. By the close on Friday, the ETF was showing a gain of 0.45%.
Merger Arbitrage Portfolio Performance Review
Cash merger arbitrage spreads as measured by the Merger Arbitrage Limited T20 Index however advanced during the week. The gain was in large part due to the advancements made by Sina Corporation (SINA) and Sogou (SOGO) which had previously been trading at relatively large discounts to their respective offer prices.
There were no offers which closed during the week neither were there any deals failures. Urovant Sciences (UROV) which had been moving ahead in recent weeks saw its stock price move up to the $16.25 offer price from Sumitovant Biopharma and is subsequently removed from 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 0.47%. The index was comprised of an incomplete complement of 19 merger arbitrage cash deals. As expected with this positive performance, the winners outpaced by the losers by a margin of 13 to 4 with 2 non-movers. The standard deviation of the individual index returns was 0.96%. This figure is below both the long term average and the lower medium term average.
Merger Arbitrage Performance Review - January 24, 2021
SINA Corporation (SINA)
Sina was also a strong performer this week. Despite no new deal news to report the stock became the best 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.
This week’s performance is in stark contrast to that of last week and more than reverses the losses encountered during that period. As the stock is now so close to the offer it would be prudent to expect an announcement soon suggesting the completion of the deal is nigh.
By the end of the week, the stock finished up $1.34 at $43.08, a rise of 3.21%. This leaves the simple spread at just 0.51%. We maintain our small positon in this stock but anticipate exiting the position during the coming week so as to take some money off the table and allow us the opportunity to renter should volatility return.
Sogou (SOGO)
Sogou also continued to rebound 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 $0.24, at $8.50, a rise of 2.91%. This leaves the simple spread at 5.88%, and still the largest in the index.
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. As Sogou and Sina, again the was no new deal this week but the stock continued to move ahead. By the close on Friday, the stock had settled at $36.74, up $0.37 or 1.02%. This leaves the simple spread at 0.71%.
The expected completion date is given as 1H, 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 following our previous analysis it appears we were to slow to take advantage of the recent pull back. As the opportunity at those lower levels has now passed, it is unlikely will shall initiate a position in the near future with the spread this tight. However, we shall continue to monitor the situation and may buy on weakness should the opportunity arise again.
Urovant Sciences (UROV)
What was considered a turbulent ride has now settled for Urovant Sciences (UROV) as the stock moved to within a penny of the $16.25 offer price from Sumitovant Biopharma. 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 recent news regarding the deal was a PREM14A filing with the SEC from the previous week 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:
The market however seems convinced this deal will close as expected in the near future. By the end of the week, the stock had finished up $0.08 at $16.24, a rise of 0.50%. This leaves the simple spread at 0.06%. We have no position, and as expected, it is almost certain we will not open a positon in this stock at this time.
