This is the weekly Merger Arbitrage Performance Review – May 30, 2021. This report focusses on the performance of the MX, CHNG, AJRD & CCRC merger arbitrage spreads during the period 24th May – 28st May. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 23rd 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 30, 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.
News junkies can find additional live news updates for deals listed in the T20 Index 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 30, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.03% | SPY | 1.23% |
| Index Dispersion | 1.03% | VIX | 16.82% |
| Winners | 11 | MNA | 0.21% |
| Losers | 6 | ||
Market Performance Review
Economic news and the promise of increased domestic infrastructure spending helped propel the broader market higher during the week. With the fear of inflation and the possibility of higher interest rates taking a backseat for the time being, the broad based SPDR S&P 500 ETF (SPY) finished higher by 1.23%. Although enduring a mildly volatile week, the VIX responded and moved accordingly. By the end of the week, the fund was showing a loss of 16.82%.
The IQ Merger Arbitrage ETF (MNA) also performed well throughout the week helped by stalwarts Xilinx (XLNX) and Slack Technologies (WORK). The major gain however came from the improved offer for Welbilt (WBT). By the close on Friday, the ETF was showing a gain of 0.21%. Following this gain, the fund is just holding on to positive territory for the calendar year showing a gain of 0.45%.
Merger Arbitrage Portfolio Performance Review
Cash merger arbitrage spreads as measured by the Merger Arbitrage Limited T20 Index also gained during the week. The main driver of performance came from the recovery in Change Healthcare (CHNG) which reported positive earnings results during the week.
There were no closed deals during the week from last week’s index constituents. However, familiar names and former index constituents such as Cubic (CUB) and Tribune Publishing (TPCO) did consummate successfully. Traders can find more spread details regarding this week’s index list on our Spread Tracker page.
By the close on Friday, the T20 index was in positive territory finishing up for the period by 0.03%. The index was comprised of a complete complement of 20 merger arbitrage cash deals. Winners outpaced by the losers by a margin of 11 to 6 with 3 non-movers. The standard deviation of the individual index returns was 1.03%. This figure is exactly inline with both the long-term average and medium term average level.
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Merger Arbitrage Performance Review - May 30, 2021
Change Healthcare (CHNG)
We continue to hold our position in Change Healthcare (CHNG) and anticipate doing so should there be further increases in the stock price. However, as mentioned previously, “we would look to bank some profits and take some money off the table“, we now revise this analysis as deal prospects improve. By the end of the week, the stock finished up $0.46 at $23.44, a rise of 2.00% against an offer price of $25.75. This gives a simple spread at an attractive 9.85% and is the second highest in our merger arbitrage index.
Aerojet Rocketdyne (AJRD)
Following a previous decline, we stated we had opened a small position in this stock that has now just turned into a healthy profit. We are happy to maintain the position for the time being. By the end of the week, the stock finished higher by $0.52 at $48.45, a rise of 1.08%. Against an offer price of $51, this leaves the simple spread at 5.26%. The expected closing date is still a long and rather vague expectation of 2H, 2021.
China Customer Relations Centers (CCRC)
We were looking to exit part of this position before deal consummation but the stock didn’t quite hit our target. We initiated a small position in this stock at around the $6 level following a previous drop. We are happy to maintain our position for the time being. By the end of the week, the stock finished lower by $0.21 at $5.96, a fall of 3.40% against an offer price of $6.50. This leaves the simple spread at a healthy 9.06%. The company expects the deal to close in 2Q, 2021.
Magnachip Semiconductor (MX)
Magnachip is a constant presence in our review column demonstrating the volatile nature of this particular stock. A warning in itself to those who adhere to disciplined risk management principles. Having been the best performer in the index on a number of occasions the stock declined through the week as news hit the market of a CFIUS review was required.
As a speculative endeavor, we had taken a slightly larger positon as the spread has widened. We have exited part of this position and expect to sell more of the position should the stock continue to rise. This stock is forms part of our Active Arbitrage strategy and as such, we shall look to increase the position should the stock fall further with the anticipation of not holding this position until deal resolution.
By the end of the week, the stock had finished negatively, down $0.33 at $23.70, a fall of 1.37% against an offer price of $29. This now gives a simple spread at 22.36% and is by far the highest in our merger arbitrage index.
Merger Arbitrage Performance Review - May 30, 2021
Conclusion
Traders will find the most recent list of the largest merger arbitrage spreads is already available. Our merger arbitrage spread calculator is also available for FREE download. Traders can use this tool to value the arbitrage spread of any stock deal merger you may wish to invest in or trade. Additionally, the spreadsheet also functions as a valuation tool for a pairs trading or relative value investment strategy for stocks.
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