This is the analysis of Merger Arbitrage Spread Performance September 15, 2019. This reports covers the top 20 investable US cash based merger arbitrage spreads for the week 9th – 13th September. We produce this report at the end of each week. Firstly, the analysis discusses the biggest winners & losers from the portfolio. Secondly, we highlight the performance of the portfolio and conclude with the broader market as a point of comparison. The information contained in this weekly analysis and review assists traders in their merger arbitrage investment decision making.
In this report, Merger Arbitrage Limited reviews a selection of merger and acquisition deals from the T20 Portfolio. A list of pending cash merger arbitrage spreads available as at 8th September. Investors and traders can follow our latest Top 20 (T20) list each week here. Regular followers will already be familiar with our rules for inclusion on the T20 Portfolio. Click this link for the spread performance analysis from the previous week.
Merger Arbitrage Spread Performance September 15, 2019
Red Robin Gourmet Burgers (RRGB)
Red Robin Gourmet Burgers (RRGB) staged an impressive comeback this week to finish up 5.23% at $34.78. This leaves a spread of $5.22 against a buyout price of $40 from Vintage Capital. During the week, the RRGB board issued a statement rejecting the offer claiming it “undervalued” the business. Vintage swiftly countered by outlining their proposal and suggesting,
“The Board will be called to answer for its campaign of delay, obfuscation, and fiduciary duty breach.”
This is clearly the most volatile of the cash merger arbitrage spreads currently available. We have for some time considered this deal a good candidate for our active arbitrage strategy and may well initiate a position in the near future. It appears Vintage is prepared to put up at least some kind of a fight. This will test the resolve of the RRGB board and may well continue the volatile nature of the spread for some time. Were Vintage to walk away and the stock return to the $30 level, the board would be left with a great deal of explaining to do to a large number of angry shareholders.
Spark Therapeutics (ONCE)
Spark Therapeutics was another strong performer during the week. Despite there being little news it appears the stock was heavily influenced by the broader market rise. By Friday, the stock had closed up 3.66% at $104.77. This is against an offer price of $114.50 from Roche (RHHBY). Despite the rise this week, we are still somewhat underwater here. Positive market sentiment can take this spread so far, but beyond that, we await news of the ongoing investigation by the FTC and the U.K.’s CMA. However, we maintain our position.
Mellanox (MLNX)
As the broader market rises on positive news regarding the possibility of productive trade talks between the U.S. and China, one can be almost certain Mellanox will be amongst the largest gainers for the week. The MLNX spread has been under pressure as traders fear retaliatory action by the Chinese may cause a number of deals to be rejected on competition grounds. As relations thaw, the prices of these stocks have increased. The week, MLNX rose 1.68% to $111.44. This contrasts with an offer price of $125 from NVIDIA (NVDA). This increase builds upon last week’s announcement that China’s State Administration for Market Regulation formally started its review of Nvidia’s acquisition. Of important note here is the 180-day review period. If the maximum time is taken this takes us to the end of February next year. Beyond the end of year expected closing date. However, once again we maintain our position and will await further clarification in the global trade arena.
Cypress Semiconductor (CY)
The last significant gainer for the week was Cypress Semiconductor. The stock rose 0.82% to close at $23.34. This leaves the simple spread at 3.13%. This rise marks a continuing increase for this spread. The offer from Infineon (IFNNY) is for $23.85. Although there was no specific deal news announced the spread has clearly benefitted from the broader market and positive trade talk sentiment. We maintain our position and await further clarification in the global trade arena. However, should this spread rise much further we may be prepared to lower our exposure to this sector and the primary issues surrounding this deal. Expected closing is still some way off although things may well move rapidly from now on. However, we are already showing a healthy profit on this spread and will be keen to reinvest the funds elsewhere.
There were no decliners of note this week.
Merge Arbitrage Portfolio Performance
Winners beat out the losers by a score of 13 to 6 with 1 non-mover this week. The portfolio consisted of 20 stock and 0 cash positions. The portfolio showed a positive performance finishing up for the week by 0.63%. As discussed above, sizeable gains and no decliners of note was enough to propel the index into positive territory. Readers can also stay abreast of the latest deal developments following our customized T20 Portfolio news feed. The latest mergers and acquisitions news updates focusing exclusively on the pending cash mergers we consider eligible for investment. Return standard deviation for the past week was 1.40% reflecting the large gains made. This figure is in line with both the medium and longer-term averages.
MNA SPY VIX Returns Table 20190913
*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.
Market Performance
Gains throughout the week left the MNA ETF producing an overall gain showing another healthy positive return of 0.69%. This extends an impressive positive run consisting of one negative week in the last eleven. At last, the IQ Index merger arbitrage ETF is showing progress. It has however closely followed the broader market during its recovery. The broader market meanwhile continues to experience volatility related to the trade dispute. The S&P 500 ETF, SPY, finished up another healthy 0.99%. The VIX index accordingly moved lower and eventually settled on a decrease 8.40% for the week. We had previously suggested volatility would remain higher as the market continues speculating on the next action in the ongoing trade war. This week, the market moved higher as both sides offered concessions backed by a favorable economic climate. Markets view the delaying of tariff impositions as a precursor to making a deal. Spreads with exposure to these factors have benefited again although practical results are yet to be seen.
And finally…
The most recent list of the largest spreads is already available. Our merger arbitrage spread calculator is also available for FREE download. This can be used to value the spread of any stock-for-stock deals you may be interested in.
