This is the weekly Merger Arbitrage Performance Review – February 14, 2021. This report focusses on the performance of the SINA, SPWH, PNM, & AJRD merger arbitrage spreads during the period 8th February – 12th February. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 7th February, 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 14, 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 GLUU, LITE–COHR, CHNG, AJRD, TLRY–APHA & WDR.
Table of Returns
Merger Arbitrage Performance Review - February 14, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.07% | SPY | 1.27% |
| Index Dispersion | 0.56% | VIX | 4.31% |
| Winners | 8 | MNA | 1.30% |
| Losers | 11 | ||
Market Performance Review
Equity markets moved forward again during the week as a result of positive corporate earnings reports and the continued support of fiscal stimulus. The vaccination program continues to roll out domestically as it does across the globe. As new cases decline it is reported that some countries, such as the UK will begin lifting restrictions within the next two months. Jobless claims remain elevated and came in slightly above expectations although not by enough to trouble the broader market.
By the close on Friday, the SPDR S&P 500 ETF (SPY) index fund had moved higher by 1.27%. Accordingly, the VIX responded by moving lower and by the end of the week was down 4.31%. The IQ Merger Arbitrage ETF (MNA) also had a positive week. Gains in Aphria (APHA) were noted as Tilray (TLRY) stormed forward being the latest subject of the anti short selling wall street rebellion movement. Many arbs who were originally able to short the stock to take advantage of the spread were forced to cover their short positions as stock availability dried up. At one point, the spread was over $30 an represented a possible 115% return. By the close on Friday, the ETF was showing a gain of 1.30%.
Merger Arbitrage Portfolio Performance Review
Cash merger arbitrage spreads as measured by the Merger Arbitrage Limited T20 Index declined during the week. The loss was in large part due to a number of medium sized losses from Aerojet Rocketdyne (AJRD), Sportsman’s Warehouse (SPWH), PNM Resources (PNM) and Sogou (SOGO). This was despite a strong performance from Sina Corporation (SINA) which now trades above the $43.30 offer price from New Wave MMXV Ltd and has subsequently been removed from the index.
Deals which had previously featured in the index that closed during the week included BioTelemetry (BEAT), Collectors Universe (CLCT), Endurance International Group (EIGI) & Virtusa (VRTU). More spread details about this week’s index list can be found on our Spread Tracker page.
The T20 index just failed to regain ground lost early in the week and closed down for the period by 0.07%. The index was comprised of a complete complement of 20 merger arbitrage cash deals. As expected with this performance, winners and losers were reasonably level although the losers had the upper hand by a margin of 8 to 11 with 1 non-mover. The standard deviation of the individual index returns was 0.56%. This figure is extremely low and is significantly below both the long term average and the medium term average.
Merger Arbitrage Performance Review - February 14, 2021
SINA Corporation (SINA)
Two SC 13G/A filings this week showed us how Schroder Investment Management Ltd. and Morgan Stanley had taken a 0.007% and 0.1% stake respectively in Sina Corporation. Of course, unfortunately, these announcements are already horribly out of date and refer to “12/31/2020
(Date of Event Which Requires Filing of this Statement)”
However, the stock continued to climb and now trades at a premium to the $43.30 offer price from New Wave MMXV Ltd. What is most interesting is the position of 101,778,958 shares of Weibo (WB) that Sina currently holds. A 20-F filing by Weibo last April states
Our Relationship with SINA
We are a controlled subsidiary of SINA. We have entered into agreements with SINA with respect to various ongoing relationships between us after our initial public offering. These agreements include a master transaction agreement, a transitional service agreement, a non-competition agreement, a sales and marketing services agreement and a transitional services agreement. The following are summaries of these agreements and of an intellectual property license agreement that we entered into with SINA in April 2013.
This position translates to 71% of the voting power and is currently worth $6.29bn as of February 12. This compares to the offer value of $2.59bn from New Wave. In light of this valuation discrepancy traders believe there appears to be limited downside by buying the stock up to the offer price. Purchasing the stock above the offer price in hope of a superior offer from New Wave however may be risky. New Wave currently hold 58% of the voting power in Sina and have already raised the offer once before.
In light of this analysis, we shall be publishing a full length analysis into this topic in the very near future.
By the end of the week, the stock finished up $0.80 at $43.51, a rise of 2.13%. This leaves the simple spread at negative 0.48%. We have subsequently trimmed our position.
Aerojet Rocketdyne (AJRD)
This week’s biggest loser was Aerojet Rocketdyne. The major developments concerning this deal during the week was a DEFM14A filing with the SEC stating
You are cordially invited to attend a special meeting of stockholders of Aerojet Rocketdyne that will be held at 9:00 a.m. Pacific Time, on March 9, 2021
Under normal circumstances this announcement, coupled with the not too distant future date would signal deal consummation is nigh and cause the stock to rise. However, for unknown reasons this was not to be the case.
Following a previous drop, we initiated a small position in this stock which is no longer showing showing a profit. We are however happy to maintain the position for the time being. By the end of the week, the stock finished lower by $0.39 at $52.36, a fall of 0.74% 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 7.69% due to the long deal closing timeline, (2H, 2021), the second highest in the index.
Sportsman’s Warehouse (SPWH)
Another decliner and new face in our analysis column is Sportsman’s Warehouse. A couple of SC 13G/A filings were made with the SEC during the week but no other specific deal updates were issued. The stock is currently the subject of a $18 a share bid from Great American Outdoors Group with the deal expected to close in 2H, 2021. With such an extended closing timeline and not enough movement to suggest to deal will close significantly prematurely, we are not in a rush to enter a position.
By the close on Friday the stock had finished lower by $0.12, at $15.51, a fall of 0.68%. This leaves the simple spread at 2.80%.
PNM Resources (PNM)
Following an extraordinary meeting of shareholders on Friday, Pat Vincent-Collawn, PNM Resources’ chairman, president and CEO stated
“We are delighted by the overwhelming shareholder support of this merger,”
Approximately 93 percent of the shares that voted were for the approval of the proposed merger agreement, reflecting approximately 70 percent of shares issued and outstanding on the record date. PNM Resources is yet to report the final vote results in a Current Report on Form 8-K which will subsequently be filed with the Securities and Exchange Commission (SEC).
However, approvals are still needed from
- Federal Communications Commission
- Nuclear Regulatory Commission
- Federal Energy Regulatory Commission
- Public Utility Commission of Texas
- and New Mexico Public Regulation Commission
As deals of this nature are notoriously lengthy in their closing timelines, and in the absence of any updates regarding these approvals, the stock declined.
We do not currently hold a position but at the previous lower levels, we had stated we would like to initiate one. We now feel that despite the lower price, the regulatory clearance still required suggest our capital may be better employed elsewhere for the time being. We shall be watching this deal closely however for any updates and stand ready to initiate a position if necessary. 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.
By the close on Friday had finished lower by $0.30, at $48.60, a fall of 0.61%. This leaves the simple spread at 5.48%.
