This is the analysis of Merger Arbitrage Spread Performance January 20, 2019. A review of the top 20 tradeable cash based merger arb spreads in the USA for the week 14th – 18th January. Included in this week’s report are the winners, losers and overall performance of the portfolio. This report is based upon the Merger Arbitrage Limited top 20 (T20) list of cash merger arbitrage spreads available as at 13th January.
(PS Don’t forget it’s Martin Luther King Jnr day on Monday).
We’ve added some additional information recently
- The standard deviation of returns for the top 20 in addition to the average return. This gives our readers a better idea as to the movement within the portfolio.
- The change in the VIX (relative percent) is also included as a complimentary figure to the performance of the SPY
Winners
- This week’s best performer was Pacific Biosciences of California (PACB) gaining 1.66%. Despite there being little official news during the week, a DEFR14A filing was made “to provide supplemental information concerning the special meeting and the matters to be considered at the special meeting”. There was no mention of the second request for information by the FTC but the methodology of calculating fair value was further explained. The special meeting will be held Thursday, January 24, 2019, at 8:00 a.m., Pacific Time. The stock is still offering a spread of 8.99%
- This week’s 2nd best performer was Luxoft Holding (LXFT) gaining a further 0.72%. Its deal to be acquired by DXC Technology Company saw the spread close to within 2.34% this week. On Wednesday the company filed a copy of the “NOTICE OF ACTION BY WRITTEN CONSENT AND DISSENTERS’ RIGHTS”. This deal was only announced on the 7th Jan and was not forcast to close until the middle of the year. We will maintain our long position for the time being.
- Dun & Bradstreet Corp (DNB) was also a strong performer up 0.63%. On the 17th January the company won approval from the FCA in the UK for its proposed takeover CC Capital, Cannae Holdings and Thomas H. Lee Partners. Whereas we may occasionally take some profits to redistribute capital, we believe closure of this deal is imminent and will maintain our position. despite this spread no longer being in the T20 list for the coming week. The original forcasted closing date was at the end of the month.
- Tribune Media Company (TRCO) was up 0.50%. During the week, acquirer Nexstar Media Group extended the contract of founder and CEO/Chairman Perry Sook through the end of February 2023. The spread still offers 1.96% but is not expected to close until end 3Q.
- Loxo Oncology (LOXO) was up 0.43%. This tender offer is expected to expire on the 14th February as stated in the Schedule 13D filed during the week. Only 50% plus one share is required for completion of the acquisition which commenced on the 17th January. There is only a 0.64% spread available but as stated, this may close in less than one month.
Losers
- NxStage Medical (NXTM), one of last weeks strongest performers continued its volatile run. The stock declined 1.38% and now offers a simple spread of 5.26%. This was despite there being no significant news or any filings made by the company. This deal which was originally expected to close at the end of last year and it appears Fresenius Medical Care AG & Co. are struggling to close the deal. A decline such as this during a rising market is cautionary and whilst maintaining a long position we will be monitoring this position closely.
- Integrated Device Technology Inc (IDTI) was the weeks other loser of note losing 0.39%. On the 15th January the company filed an 8-K listing the results of the recent shareholder vote. As expected, shareholders voted overwhelming in favour of the deal with Renesas Electronics Corporation (“Renesas”, TSE: 6723). However, details were also given about the pending CFIUS review which is now on hold during the government shutdown and stated that it will “resume following the resumption of operations by the relevant U.S. government agencies”. Antitrust approvals have already been received from a variety of global agencies in addition to the expiration of the HSR waiting period. But the CFUIS delay is sufficient to cause the spread to widen as forecasting a completion date becomes more treacherous.
- Essendant Inc (ESND) was also down a 0.32%. This weeks decline follows last weeks positive performance. Once again we saw the company file an extension of the tender offer for an additional week. The acceptance level has now climbed to 72.48% of the outstanding shares. Staples and Essendant still “expect the merger to close in early 2019”. At $12.59 a share, this simple spread is still offering 1.67%
Portfolio Performance
Winners outpaced losers this week by 15 to 5 although the portfolio return was a meager positive performance of 0.15%. The standard deviation of the returns is 0.58%. This is lower than normal and reflects the rather muted performance of returns during the past week. There were no dividends paid during the week from the T20 list. The MNA ETF returned a positive result for the fourth straight week running up 0.12%. The S&P 500 ETF, SPY produced another positive return to close up 2.89%. Accordingly the VIX index decreased by a further 2.14%.
MNA SPY VIX Returns Table 20190118
*We have not included MRGR ETF for liquidity reasons. Click the table to read our Merger Arbitrage ETF Review and see a discussion of how liquidity and other factors affect the performance of these products.
