This is the weekly Merger Arbitrage Performance Review – February 7, 2021. This report focusses on the performance of the SINA, PNM, & AJRD merger arbitrage spreads during the period 1st February – 5th February. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 31st 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 – February 7, 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 - February 7, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.46% | SPY | 4.77% |
| Index Dispersion | 0.54% | VIX | 36.93% |
| Winners | 17 | MNA | 0.30% |
| Losers | 2 | ||
Market Performance Review
Equity markets rebounded strongly during the week following last week’s decline and posted their best weekly performance sine last November. The rally was fueled by a number of issues, chiefly amongst which was the decline, both domestically and globally of the number of new Covid cases. When coupled with the increasing intensity of the vaccination program, markets have reasoned a return to “normality” will not be far away. Despite the January jobs report being below expectations, the continued stimulus program is expected to support consumer spending in the near term. Crude oil also hit its highest level for the year posting a 10% rise for the week.
By the close on Friday, the SPDR S&P 500 ETF (SPY) index fund had moved higher by 4.77%. Accordingly, the VIX responded by moving lower and by the end of the week was down 36.93%. The IQ Merger Arbitrage ETF (MNA) however had a negative week. Losses in Grubhub (GRUB) and Inphi (IPHI) featured prominently amongst the decliners. By the close on Friday, the ETF was showing a loss of 0.30%.
Merger Arbitrage Portfolio Performance Review
Cash merger arbitrage spreads as measured by the Merger Arbitrage Limited T20 Index appreciated during the week. The gain was in large part due to the reversal of the losses made by the previous period’s biggest loser, Sina Corporation (SINA). Aerojet Rocketdyne (AJRD) which has also displayed higher volatility of late was also a strong performer. As pointed out before, these stocks with a lower DCP have made them more susceptible to the effects of broader market movements.
There were no deals from our index that closed during the week although three tender offers are on the verge of closing should the sufficient amount of stock be tendered. BioTelemetry (BEAT) Feb 8th, Collectors Universe (CLCT) Feb 5th (extended) & Seacor Holdings (CKH) Feb 12th (extended). 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 0.46%. The index was comprised of a complete complement of 20 merger arbitrage cash deals. As expected with this positive performance, the winners outplayed the losers by an impressive margin of 17 to 2 with 1 non-mover. The standard deviation of the individual index returns was 0.54%. This figure is extremely low and is significantly below both the long term average and the medium term average.
Merger Arbitrage Performance Review - February 7, 2021
SINA Corporation (SINA)
Champion leader this week goes to Sina in true flip-flop fashion as the stock oscillates between biggest winner and biggest loser on a weekly basis. Despite no new deal news to report the stock became the best performer in the index having rallied hard to close in on the $43 offer price from New Wave.
In light of our previous analysis
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.
This was followed with
We were able to exit part of our position and now look to reenter during the coming week.
By being able to top up our position during the week, before the resurgence of the stock price, we have in fact been executing an unofficial version of our active arbitrage strategy. For the time being, especially before any official announcement is made, we will continue to trade back and forth as volatility allows us.
We were able to exit part of our position and now look to reenter during the coming week. As ever, we expect an announcement soon suggesting the completion of the deal is nigh, but have learnt not to sit idly waiting for such an event. By the end of the week, the stock finished down $0.89 at $42.71, a rise of 2.13%. This leaves the simple spread at 1.38%.
Aerojet Rocketdyne (AJRD)
Aerojet Rocketdyne makes is now becoming a common appearance in the leaders and laggards this week. This week, the stock returns to the top half of the board following a couple of larger downward moves. This recovery follows a previous research note from Jefferies suggesting a higher offer was unlikely, and subsequently caused the stock to drop back.
The big news during the week was the announcement of the extraordinary general meeting. This is scheduled to take place on March 9. This traditionally signals the closure is within sight. As the deal has been expected to close in 2H, 2021, an early closing of the deal will provide a handsome annualized return for investors.
Following a previous drop, we initiated a small position in this stock which is now showing a small profit which we will maintain for the time being. By the end of the week, the stock finished up $0.71 at $52.75, a rise of 1.36% against an offer price of $51. This deal also includes a special dividend payment of $5.00. This leaves the simple spread at a healthy 6.81% due to the long deal closing timeline, (2H, 2021), the second highest in the index.
PNM Resources (PNM)
Another star performer in the index this week was the seldom covered PNM Resources. By the close on Friday had finished higher by $0.38, at $48.90, a rise of 0.78%. This leaves the simple spread at 4.75%. This includes a reasonable dividend yield increasing this merger spread to an attractive level although the lengthy expected completion date has caused some to take some money off the table.
The only news announced during the week was an SC 13G/A filing with the SEC regarding the holding of Blackrock which is now given as 11.6%.
We do not currently hold a position but at the previous lower levels we had stated we would like to initiate one. We were unable to do this at the time but stand ready to make an investment should the stock drop back. As a side note, dividend investors may also find this an attractive play. However, do pay attention to the extended completion timeline and the regulatory hurdles that need to be cleared.
