Merger Arbitrage Spread Performance – 03 February 2019

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

• The big news this week is the closure of the Essendant Inc (ESND) deal on Thursday. The stock started the week with a $0.32 spread compared to the $12.80 offer price and thus became the strongest performer for the week from out T20 list. It appears the market was caught unaware that closure was imminent. Traders who purchased this stock recently would have made a very tidy gain.
• The second best performer this week was NxStage Medical (NXTM) gaining 2.50%. A filing on the 29th January indicated the progression of the deal with regards to the expected closure date “to extend the end date from February 5, 2019 to the earlier of (1) August 6, 2019 and (2) the first business day that is at least 60 calendar days after the Federal Trade Commission (“FTC”) has been appropriated funding to be fully operational for at least 60 consecutive days during fiscal 2019.”  The company continues to await approval from the FTC for the consent decree divesting the bloodlines business. The spread is still at 2.92% following this week’s gain.
• Arris International (ARRS) was also a gainer this week, up 1.19%. Preliminary results were reported at the beginning of the week which were in line with expectations. However, Friday’s 8-K filing announced the results of the shareholder vote. Unsurprisingly, shareholders voted overwhelmingly to agree to the takeover. The deal remains subject to various closing conditions. The spread has now narrowed to just 0.89% but we maintain our long position.
• Redhat (RHT) had another strong week and finished in positive territory up 1.07%. A “Form SC 13G/A – Statement of acquisition of beneficial ownership by individuals” was made on Friday although the stock had been climbing all week. We believe this is in part to speculation of the deal closing early and the positive effects of the broader market. As noted last week, of this rise continues we’ll be looking to take some money off the table.
• InfraREIT, Inc. (HIFR) was also up the week 0.90%. The company filed a DEF14A during the week specifying additional information about the merger in relation to two lawsuits. In light of this “the plaintiffs in the Lawsuits have agreed to voluntarily dismiss the Lawsuits”. Investors cheered the news ahead of the special meeting of the Company’s stockholders, to be held on February 7, 2019 to vote on the merger. 

Losers

• This week’s worst performer, only the only negative result, was Pacific Biosciences of California (PACB). The stock declined a whopping 4.60%, $0.33 this week following on from last week’s decline. On Tuesday filing was made which detailed the financial payments to be made to the putative class action complaints. However this was not unexpected and the stock continued to decline. The stock is still offering a return of 16.96%. The delay caused by a second request for information and speculation as to the severity of that request continues to weigh on the stock. If some clarity emerges from this situation we will be ready to take a position.