This is the weekly analysis of Merger Arbitrage Spread Performance March 22, 2020. This reports covers the top 20 investable US cash based merger arbitrage spreads for the week 16th March – 20th March. The first section of this report discusses the biggest winners & losers from the T20 portfolio. Then we detail the performance of the overall portfolio. To conclude, we compare this performance with the broader market and the IQ Merger Arbitrage Exchange Traded Fund – MNA. The information contained in this weekly analysis & review assists traders in their merger arbitrage investments and trading.
In this report, Merger Arbitrage Limited reviews a selection of merger and acquisition deals from the T20 Index. A list of the largest pending cash merger arbitrage spreads available as at 15th March. 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 Index. Click this link for an analysis of the spread performances from the previous week.
Merger Arbitrage Spread Performance March 22, 2020
Winners
…next time… 🙁
Red Robin Gourmet Burgers (RRGB)
Red Robin continues to suffer as the effect of the coronavirus becomes evermore critical. The situation at this company has now moved beyond the analysis of merger arbitrage and instead now focusses solely upon survival. Forms detailing changes in beneficial ownership by a number of senior officers within the firm were filed with the SEC this week but there was no news regarding the takeover bid. Anybody remember that? A bid from Vintage Capital for $40 per share. Despite attempting a recovery rally at one pint during the week the stock plummeted new depths to close at the end of the week down $2.62 at $6.55, a fall of 28.57% leaving the simple spread at a whopping 510.69%. As can be imagined, we are not actively trading this stock at these levels. We will hold our positon although we expect further volatility in this sector.
Bitauto Holdings (BITA)
Deals with Chinese connections also continue to experience high volatility. Bitauto declined throughout the week as traders tried to gauge the effect of the slowdown in Chinese manufacturing will have on the firm. BITA is due to report earnings on March 26. The stock closed down for the week at $9.90. A fall of $2.40 or 19.51%. This leaves the arbitrage simple spread at 61.62%. We remain holders of our small position in this stock.
Tallgrass Energy (TGE)
Tallgrass Energy was also a significant decliner during the week. Despite no new deal news being announced investors continue to be wary about Blackstone’s Saudi-backed oil pipeline deal. This caused this stock to move lower and independently from the broader market for the rest of the week. By Friday’s close, the stock was down $2.50 at $14.10, a fall of 15.06%.
Tech Data Corporation (TECD)
Tech Data Corporation makes a rare appearance in the largest moves this week. The firm is currently subject to a takeover from Apollo Global for $145 per share. During the week, French authorities fined the firm $83.5m after allegedly agreeing to a non compete clause with Apple and another U.S. company. How much this spooked investors into questioning the successful completion of the deal is unclear. However, with the spread now at 27.19% this could be worth keeping an eye on.
Merger Arbitrage Portfolio Performance
Cash merger arbitrage spreads come under pressure yet again in another uniquely difficult week. Multiple double digit declines from a number of spreads have caused the index to decline sharply. Winners failed to register a score this week as once again the losers triumphed by a score of 19 to 0 with 1 non-mover. The portfolio operates with a full selection of 20 merger arbitrage deals and 0 cash positions. The index closed down fro the week by a further 7.62%. This loss was attributable to the continued fall in RRGB whilst being flanked by BITA, TGE, TECD, BREW & AXE. The standard deviation of the individual index returns for the past week was a phenomenal 7.68% courtesy of there being no positive returns!. As expected, this figures recorded in this new market environment continue to be significantly above the historical averages.
Additional live news updates for these deals can be found on our customized T20 Index news feed. Even more specific merger details & news can be found on the dedicated news and merger information pages for recently announced deals including AON, TGNA, MEET, FTSV, GCAP, & RRGB.
MNA SPY VIX Returns Table 20200320
*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
The IQ Merger Arbitrage ETF, MNA, sold off during the first half of the week but managed to buck the general trend on Friday to record a solid gain of over 1%. An impressive turnaround for the ETF which hit a 6 1/2 year low during Monday’s trading. By the close on Friday, the IQ Merger Arbitrage ETF was down 2.97%, having been down over 12.5% at one stage during the week. The broader market however, troubled by the domestic increased spread of the coronavirus continued to struggle. Despite a recovery rally on Tuesday, following Monday’s steep decline, the markets were still significantly in the red for the week. The SPDR S&P 500 ETF, SPY, managed to finish down 14.60% for the week. The VIX index responded in kind continued its ascent. By Friday the index had risen again by 14.20%.
The U.S. is in the process of taking significant action to prevent the spread of the virus. The effect on the domestic economy has been such that the government has announced a $1.2tn stimulus package, whilst interest rates have been lowered by a full percentage point. Restaurant stocks continue to be particularly hard hit as Matt Maloney, CEO of GrubHub warns up to 30% of restaurants could close.
In light of popular feedback from previous postings (thank you very much) we shall continue to repeat the following section from our previous analysis
- It is important for traders of merger arbitrage to consider how each of their individual positions will be affected by a continued spread of the virus.
- How can this affect the granting of regulatory approval in China?
- Are delays inevitable?
- Will a slowdown in the global economy lead acquirers to rethink their acquisition strategy?
- Also important is that merger arbitrage stocks which were supported by higher floor prices may now have some of that protection removed.
And finally...
Traders will find the most recent list of the largest merger arbitrage spreads is already available. Our merger arbitrage spread calculator is also available for FREE download. Traders can use this tool to value the arbitrage spread of any stock-for-stock merger deals you may wish to invest in or trade. Additionally, the spreadsheet also functions as a valuation tool for a pairs trading or relative value investment strategy for stocks
