This is the weekly Merger Arbitrage Performance Review – May 2, 2021. This report focusses on the performance of the CHNG, MX, AJRD & TLND merger arbitrage spreads during the period 26th April – 30th April. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 25th April, 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 – May 2, 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, IIVI–COHR, CHNG, AJRD & TLRY–APHA.
Table of Returns
Merger Arbitrage Performance Review - May 2, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.44% | SPY | 0.13% |
| Index Dispersion | 0.83% | VIX | 7.39% |
| Winners | 9 | MNA | 0.24% |
| Losers | 8 | ||
Market Performance Review
Despite a sharp fall on Friday the SPDR S&P 500 ETF (SPY) index fund still managed to post a positive weekly return and by the end of the week had finished higher by 0.13%. In such a volatile week, the VIX responded as expected and also move in the same direction. By the end of the week the fund was showing a gain of 7.39%.
The IQ Merger Arbitrage ETF (MNA) however struggled throughout the week. Declines in Kansas City Southern (KSU) which recently received a rival bid from Canadian National Railway (CNI) and Coherent helped lead the ETF lower. By the close on Friday, the ETF was showing a loss of 0.24%. Despite the drop, the fund has now clawed its way back into positive territory for the calendar year showing a gain of 0.93%.
Merger Arbitrage Portfolio Performance Review
Cash merger arbitrage spreads as measured by the Merger Arbitrage Limited T20 Index struggled during the week and fell short of a positive return by the close on Friday. The main drag on performance came from the declines in Magnachip Semiconductor (MX) and Aerojet Rocketdyne (AJRD).
Waddell & Reed Financial (WDR) was a deal which finally closed during the week along with Glu Mobile (GLUU). We are still awaiting the conclusion of the Waterford (WTRE) deal which recently posted a successful shareholder vote. More spread details about this week’s index list can be found on our Spread Tracker page.
By the close on Friday, the T20 index was securely in negative territory finishing down for the period by 0.44%. The index was comprised of a complete complement of 20 merger arbitrage cash deals. Winners outpaced the losers by a margin of 9 to 8 with 3 non-movers. The standard deviation of the individual index returns was 0.83%. This figure is significantly below both the long term average and the medium term averages.
Merger Arbitrage Performance Review - May 2, 2021
Talend (TLND)
By the end of the week, the stock finished up $0.33 at $64.41, a rise of 0.51% against an offer price of $66. This deal is now only offering a simple spread of 2.47% and is marginally below the average of the merger arbitrage index.
We have taken a position in this deal with the expectation that the tender offer will provide an attractive annualized rate fo return.
Aerojet Rocketdyne (AJRD)
Following a previous drop, we stated we had initiated a small position in this stock which is no longer 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 $1.88 at $46.72, a fall of 3.87% against an offer price of $51. This leaves the simple spread at just 9.16% due to the long deal closing timeline, (2H, 2021).
Magnachip Semiconductor (MX)
Moving from best performer in the index to worst performer during the week was Magnachip Semiconductor (MX). The stop dropped sharply following last weeks gain. By the end of the week, the stock finished down $0.86 at $25.01, a fall of 3.32% against an offer price of $29. This now gives a simple spread at 15.95% and is the highest in our merger arbitrage index.
Change Healthcare (CHNG)
We continue to hold our position in Change Healthcare (CHNG) despite this latest drop. As mentioned previously however, as the spread continues to narrow, we will look to bank some profits and take some money off the table. By the end of the week, the stock finished down $0.27 at $22.95, a fall of 1.16% against an offer price of $25.75. This gives a simple spread at an attractive 12.20% and is the second highest in our merger arbitrage index.
