This is the analysis of Merger Arbitrage Spread Performance September 22, 2019. This reports covers the top 20 investable US cash based merger arbitrage spreads for the week 16th – 20th 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 15th 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 22, 2019
Pacific Biosciences of California (PACB)
Pacific Biosciences of California (PACB) returned to the largest movers this week. The stock was the best performer and finished up 1.26% at $5.63. There was no new deal news announced during the week although forecasts are being made about the company’s earnings, which are scheduled to be announced at the start of November. Last week saw the release by the CMA of a third party submission regarding the takeover by Illuminia (ILMN). In that submission by a confidential source we noted,
“…takes issue with Illumina and PacBio mischaracterisation of the market in their response to the CMA’s reference decision.”
The market however appears to have shrugged off this third party analysis and any negative bearing it may have on the CMA’s decision. We maintain our long position and await further clarification. However, we are vigilantly monitoring this position and will be ready to exit immediately if necessary.
Aquantia (AQ) & Del Frisco’s Restaurant Group (DFRG)
Spark Therapeutics (ONCE)
Spark Therapeutics followed last weeks strong rebound with some profit taking this week. Despite there being no deal news, the stock slipped 2.30% to $102.36. Last week we reported on comments made by Roche CEO Severin Schwan who stated,
“Ongoing U.S. Federal Trade Commission (FTC) scrutiny of Roche’s $4.3 billion takeover of Spark Therapeutics came as a surprise…It is now expected (to close) by year’s end … We thought we should close this relatively quickly without a more-detailed review. That was not in line with our expectations.”
It appears this may have caused some profit taking, as the decline in the stock is not commensurate with the broader market movement for the week. However, we maintain our position and expect to do so for some time.
Red Robin Gourmet Burgers (RRGB)
Red Robin Gourmet Burgers (RRGB) continued its rollercoaster ride this week. The stock finished down $0.71 or 2.04% at $34.07. This leaves a spread of $5.93 against a buyout price of $40. It was a volatile week for RRGB. On Monday, the stock topped out at $35.88, whist hitting a low of over $2 less by the end of the week. The question now becomes what are the real motives of Vintage Capital. Are they trying to flush out another bidder? In addition, would that already of happened following the Board’s refusal to engage with Vintage? Alternatively, are Vintage really committed to making this deal happen? We view RRGB as a great candidate for our active arbitrage strategy but would like to see more action from Vintage first. We maintain our position and await further news.
Merge Arbitrage Portfolio Performance
Winners beat out the losers by a score of 15 to 5 with 0 non-movers this week. The portfolio consisted of 20 stock and 0 cash positions. The portfolio showed a positive performance finishing up for the week by 0.01%. The quantity of gains this week was sufficient to counteract the effect of the decliners, namely RRGB & ONCE. Readers can also stay abreast of the developments in these deals by 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 0.82% reflecting the fewer extreme movements made. This figure is lower than both the long-term and short-term averages and is the lowest for some time.
MNA SPY VIX Returns Table 20190920
*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
Volatility throughout the week left the MNA ETF producing a small overall loss and was left showing a mildly negative return of 0.03%. This ends a run of positive performances (ish) extending back almost three months. The IQ Index merger arbitrage ETF has begun to gain some traction and has consistently held positive territory in recent times. The broader market however continues to experience heightened volatility. The S&P 500 ETF, SPY, finished down 0.97%. The VIX index accordingly moved higher and eventually settled on an increase of 11.50% 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 was heightened by the Saudi oil refinerry attacks and the spike in the oil price. However, positive actions are beginning to be observed as China approved the II-VI (IIVI) deal with Finisar (FNSR).
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.
