Merger Arbitrage Spread Performance – 17 February 2019

This is the analysis of Merger Arbitrage Spread Performance February 17, 2019. A review of the top 20 tradeable cash based merger arb spreads in the USA for the week 11th – 15th February. 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 10th February.

 Winners

  • Redhat (RHT) had another strong week and finished up 0.55%. Despite there being company specific news there was little advancement on the deal. However the spread cam in by $0.99 and now stands at 5.93%. Although we still maintain our long position, this continued rise leaves us very close to taking some money off the table in light of the expected timetable of completion. Should this be the case, we will be ready to jump back in should the opportunity arise especially if the market undergoes a broader pullback.
  • Tribune Media Company (TRCO) was up 0.72%. During the week, acquirer Nexstar Media Group was reported by Bloomberg to be close to finalising a deal with Apollo Global Management for the sale of a group of local television stations. This would be conditional of the successful purchase of TRCO and as such acts as another vote of confidence for its successful completion. The spread is now only offering 0.69% and is not expected to close until 3Q.
  • NxStage Medical (NXTM) increased 0.51% to $29.30. This is the highest the stock has been in some time and reflects renewed confidence in deal closure. The spread is offering 2.39% and is the third largest. However, the closure date could be difficult to pin down due to regulatory oversight and the numerous extensions already enacted.
  • Aspen Insurance (AHL) was up 0.45% for the week having reported results for the fourth quarter the previous week and closing the deal on Friday. This deal was originally expected to close in the middle of the year so the early closing provides a healthy return to investors. It also highlights how following a deals progress can help maximize returns from those deals whose original timeframe may be considered “generous”.

Losers

  • This week’s worst performer was Pacific Biosciences of California (PACB). The stock declined 0.83% or $0.06. This decline is marginal in light of the recent volatility. The only official news during the week was an SC 13G/A filing which detailed the acquisition of beneficial ownership by individuals. We are now actively trading the volatility of this spread and are keen to take profits on our long position as and when they arise.
  • Luxoft Holding (LXFT) reported earnings on Wednesday and just missed analysts’ targets. This helped push the stock down 0.21% or $0.13. The spread is now 1.32% and is among the largest available. Should there be a further decline we may initiate a position

Portfolio Performance


We’ve previously added some supplementary information

  • 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 continued to dominate losers this week winning by a margin of 12 to 6 with 2 non-movers. The portfolio continues to show a positive performance of 0.11% due mainly to the performance the closed deals mentioned above. The standard deviation of the returns is 0.36%. This is greatly lower than the average level and again reflects the limited scope for returns on the upside (bar an improved offer) and the absence of any negative news/movements on the downside. PACB has recently been the primary instigator of portfolio deviation and this week’s muted performance dampens the dispersion of returns significantly. There were no dividends paid during the week from the T20 list. The MNA ETF returned a positive territory improving 0.12%. The S&P 500 ETFSPY which returned its best January ever also put up a hugely impressive positive 2.55% for the week. Unsurprisingly, following this huge broader market upswing and remaining untroubled by the on-going US-China trade tensions the VIX index declined by 5.15%.

MNA SPY VIX Returns Table 20190215

MNA SPY VIX Returns Table 20190215
*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.

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