This is the weekly Merger Arbitrage Performance Review – May 9, 2021. This report focusses on the performance of the SPWH, CCRC, MX & NUAN merger arbitrage spreads during the period 3rd May – 7th May. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 2nd May, 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 9, 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 IIVI–COHR, CHNG & AJRD.
Table of Returns
Merger Arbitrage Performance Review - May 9, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.02% | SPY | 1.16% |
| Index Dispersion | 0.88% | VIX | 10.32% |
| Winners | 12 | MNA | 0.56% |
| Losers | 7 | ||
Market Performance Review
A solid rally on Friday fuelled by a lower than expected jobs number which the market interpreted as meaing lower interest rates for the time being took the SPDR S&P 500 ETF (SPY) index back into positive territory for the week. By the close on Friday the index had finished higher by 1.16%. Although enduring such a volatile week, the VIX responded and moved accordingly. By the end of the week the fund was showing a loss of 10.32%.
The IQ Merger Arbitrage ETF (MNA) however struggled throughout the week. Despite a rise in in Kansas City Southern (KSU) which recently received a rival bid from Canadian National Railway (CNI) declines in stocks such as Xilinx (XLNX) took the fund lower. By the close on Friday, the ETF was showing a loss of 0.56%. Following this drop, the fund is just holding on to positive territory for the calendar year showing a gain of 0.36%.
Merger Arbitrage Portfolio Performance Review
Cash merger arbitrage spreads as measured by the Merger Arbitrage Limited T20 Index see-sawed during the week and just fell short of a positive return by the close on Friday. The main drag on performance came from the declines in Sportsman’s Warehouse (SPWH) and
China Customer Relations Centers (CCRC).
Perspecta (PRSP) was a deal which finally closed during the week. Corporate activity was however mainly centered upon earnings announcements. 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 in negative territory finishing down for the period by just 0.02%. The index was comprised of a complete complement of 20 merger arbitrage cash deals. Winners however outpaced the losers by a margin of 12 to 7 with 1 non-mover. The standard deviation of the individual index returns was 0.88%. This figure is significantly below the long term average and inline with the medium term average.
Merger Arbitrage Performance Review - May 9, 2021
Sportsman’s Warehouse (SPWH)
By the close on Friday, the stock had finished higher by $0.19, at $17.75, a rise of 1.08%. This leaves the simple spread at 1.41%. With an expected closing date in 4Q, 2021 the annual return is now at the lower end of the return spectrum. We have no positioin in this stock.
China Customer Relations Centers (CCRC)
Following a previous drop, we initiated a small position in this stock at around the $6 level. We are happy to maintain the position for the time being. By the end of the week, the stock finished higher by $0.06 at $6.21, a rise of 0.96% against an offer price of $6.50. This leaves the simple spread at a healthy 4.67%. The deal is expected to close in 2Q, 2021.
Magnachip Semiconductor (MX)
Having moved from best performer in the index to worst performer last week, Magnachip Semiconductor (MX) remains in this category once again. The stock dropped sharply following again and by the end of the week, had finished down another $0.80 at $24.21, a fall of 3.20% against an offer price of $29. This now gives a simple spread at 19.79% and is the highest in our merger arbitrage index.
Although the firm does not beleive Korean regulatory approval is needed, traders have exited their positions forcing the spread wider. As a speculative endeavour, we have taken a small positon as the spread has widened. We o not anticipate holding this position until deal resolution.
Nuance Communications (NUAN)
During the week we took a position in Nuance Communications
(NUAN). Although this deal has an expected closing date of Q4, 2021, we feel early closing makes the annualized spread sufficiently attractive. By the end of the week, the stock finished down $0.36 at $52.81, a fall of 0.68% against an offer price of $25.75. This gives a simple spread at a reasonably attractive 6.04%.
