This is the weekly Merger Arbitrage Performance Review – May 16, 2021. This report focusses on the performance of the CCRC, AJRD, MX & SOGO merger arbitrage spreads during the period 10th May – 14th May. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 9th 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 16, 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, PNM & AJRD.
Table of Returns
Merger Arbitrage Performance Review - May 16, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.45% | SPY | 1.31% |
| Index Dispersion | 1.46% | VIX | 12.70% |
| Winners | 6 | MNA | 0.24% |
| Losers | 13 | ||
Market Performance Review
Despite a strong two-day recovery at the end of the week, the broad based SPDR S&P 500 ETF (SPY) index remained in the red by the close on Friday afternoon. Marked declines at the start of the week fuelled by fears of resurgent inflationary pressures to the index lower as investors fled for the hills. The fear of increasing interest rates as the main combatant against this threat also had a significant impact on the currency markets. By the close on Friday the index had finished lower by 0.45%. Although enduring such a volatile week, the VIX responded and moved accordingly. By the end of the week the fund was showing a gain of 12.70%.
The IQ Merger Arbitrage ETF (MNA) also struggled throughout the week. Despite a rise in in Kansas City Southern (KSU) which recently gave the green light to the recently received 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 0.24%. 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 also declined during the week and fell well short of a positive return by the close on Friday. The main drag on performance came from the declines in Magnachip Semiconductor (MX) which suffered from fears over Korean regulatory approval and Sogou (SOGO).
There were no deals from our index which closed during the week. However, as we approach the middle of the second quarter, a number of deals closures look immenent. Earnings season has ended without any serious malfunctions and new deals such as Soliton (SOLY) and Ferro (FEO) have been announced. 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 0.45%. The index was comprised of a complete complement of 20 merger arbitrage cash deals. Winners were outpaced by the losers by a margin of 6 to 13 with 1 non-mover. The standard deviation of the individual index returns was 1.46%. This figure is above both the long term average and medium term average with are both close to the 1.10% level.
Merger Arbitrage Performance Review - May 16, 2021
China Customer Relations Centers (CCRC)
We are happy to maintain our position for the time being. We initiated a small position in this stock at around the $6 level following a previous drop. By the end of the week, the stock finished higher by $0.05 at $6.26, a rise of 0.81% against an offer price of $6.50. This leaves the simple spread at a healthy 3.83%. The deal is expected to close in 2Q, 2021.
Aerojet Rocketdyne (AJRD)
Following a previous decline, we stated we had opened a small position in this stock which has now just turned into a small profit. We are however happy to maintain the position for the time being. By the end of the week, the stock finished higher by $0.35 at $47.35, a rise of 0.74%. Against an offer price of $51, this leaves the simple spread at 7.71% The expected closing date is still a long and rather vague expectation of 2H, 2021.
Magnachip Semiconductor (MX)
Having appeared as the best performer in the index on a number of occasions, Magnachip Semiconductor (MX) appears to have planted itself firmly in the laggards category once again and retains its title of worst performer of the week. The stock dropped through the week and plummeted on Friday over fears that South Korean regulatory approval may not be forthcoming. A subsequent rally, in which we speculatively took part in, did manage to mitigate some of these losses. However, by the end of the week the stock had finished down another $1.44 at $22.77, a fall of 5.95% against an offer price of $29. This now gives a simple spread at 27.36% and is by far 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 do not anticipate holding this position until deal resolution.
Sogou (SOGO)
By the close on Friday, the stock had finished lower by $0.22, at $8.24, a loss of 2.60%. This leaves the simple spread at 9.22%, and is now the third largest in the index. The stock moved lower as previous reports that SAMR was about to grant approval for the deal had not materialized. However, we are happy to maintain our positions and have had the courage of our convictions.
As we have a slightly larger position than normal in theis stock, we will most likely look to take some profits during the week to reduce our exposure. This is in keeping with our proprietary risk management principles.
