After just one new deal announced in the prior four weeks, merger activity increased last week with three new deals announced, three deals closing, and one suitor attempting to walk away from a deal.
Simon Property Group (SPG) attempted to walk away from its acquisition of Taubman Centers (TCO) last week. SPG filed an action against Taubman Centers requesting a declaration that Taubman has suffered a Material Adverse Event (“MAE”) under the Merger Agreement and has breached the covenants in the Merger Agreement governing the operation of Taubman’s business. If the courts allow for the impact of the COVID-19 situation to count as a Material Adverse Event (“MAE”), it could give other acquirers a way out of their deals. We wrote the following towards the end of March,
With 10 deals trading at spreads of over 25% and 26 deals trading with spreads of over 10%, the merger arbitrage space is rife with both opportunity and risk. If the economic situation deteriorates further and impacted industries are not able to benefit from the massive $2 trillion stimulus package that has now passed both houses of congress, there is a good possibility that several of these deals will fall apart.
Studying the material adverse change (NYSE:MAC) clause of a merger agreement may not be sufficient, as acquirers could choose to walk away from deals and take their chances in the courts. Paying attention to the kind of acquirer, the macro environment and industry specific issues is very important at this juncture.
The all-stock bid by Uber Technologies (UBER) for Grubhub (GRUB) came to an end when the company agreed to be acquired by Just Eat Takeaway.com last week. According to Reuters, “Uber and Grubhub combined would account for more than half the U.S. food delivery market, according to some analysts’ estimates.” Getting approval from regulators for this deal would have been a difficult hurdle to cross for both the companies.
Tiffany & Co (TIF) amended some of its debt agreements to gain more financial leeway amid the coronavirus pandemic after its quarterly sales sank 44%. The amendments included raising the maximum leverage ratio to 4.5 from 3.5. LVMH has been watching Tiffany’s debt covenants closely to see if they give them an opportunity to get out of the deal.
Weekly Spread Changes:
The table below shows weekly spread changes between June 5, 2020, and June 12, 2020.
|Symbol||Quote||AcquiringCompany||AcquiringCompany Quote||CurrentSpread||Last WeekSpread||Spread ChangeWeekly||DealType|
|CDOR||4.45||NexPoint Hospitality Trust (N/A)||149.44%||120.68%||28.76%||All Cash|
|GRUB||60.38||Just Eat Takeaway.com N.V. (OTCPK:TKAYF)||99.2994||24.26%||0.00%||24.26%||All Stock|
|GILT||6.22||Comtech Telecommunications Corp. (CMTL)||16.92||38.35%||20.87%||17.48%||Cash Plus Stock|
|GNW||3.15||China Oceanwide Holdings Group Co., Ltd. (N/A)||72.38%||58.31%||14.07%||All Cash|
|CETV||3.69||PPF Group N.V. (N/A)||24.12%||15.95%||8.17%||All Cash|
|ACIA||67.6||Cisco Systems, Inc. (CSCO)||45.07||3.55%||4.09%||-0.54%||All Cash|
|BREW||15.39||Anheuser-Busch (N/A)||7.21%||8.48%||-1.27%||All Cash|
|SDI||13.03||Turning Point Brands, Inc. (TPB)||24.6||-2.34%||-0.32%||-2.02%||All Stock|
|QES||1.14||KLX Energy Services Holdings, Inc. (KLXE)||2.49||5.80%||14.34%||-8.54%||All Stock|
|TTPH||2.33||Melinta Therapeutics (N/A)||-23.18%||0.00%||-23.18%||Special Conditions|
|Total Number of Deals Closed in 2020||68|
|Total Number of Deals Not Completed in 2020||10|
|Total Number of Pending Deals|
|Stock & Cash Deals||3|
|Total Number of Pending Deals||45|
|Total Deal Size||$529.29 billion|
- The acquisition of Finjan Holdings (FNJN) by Fortress Investment Group for $7.2 million or $1.55 per share in cash.
- The acquisition of Grubhub (GRUB) by Just Eat Takeaway.com (TKAYF) for $6.85 billion in an all-stock deal. Under the terms of the Transaction, Grubhub shareholders will be entitled to receive American depositary receipts (“ADRs”) representing 0.6710 Just Eat Takeaway.com ordinary shares in exchange for each Grubhub share. We added GRUB as a potential deal to the Deals in the Works section on May 12, 2020, and the price after the news of the potential deal came out was $60.39.
- The acquisition of Bitauto Holdings Limited (BITA) by Morespark Limited for $3.39 billion or $16.00 per share in cash. We added BITA as a potential deal to the Deals in the Works section on September 13, 2019, and the price after the news of the potential deal came out was $14.95.
- On June 9, 2020, Tiffany & Co (TIF) which is being bought by France’s LVMH for $16 billion, announced that it has amended some of its debt agreements to gain more financial leeway amid the coronavirus pandemic after its quarterly sales sank 44%.
- On June 11, 2020, Craft Brew Alliance (BREW), and Anheuser-Busch announced an update to their proposed expanded partnership. To expedite the regulatory review process and alleviate potential regulatory concerns regarding the proposed expanded partnership, CBA and A-B have agreed to the purchase of CBA’s Kona Brewing operations in Hawaii by PV Brewing Partners.
- The acquisition of CenterState Bank Corporation (CSFL) by South State Corporation (SSB) on June 8, 2020. It took 133 days for this deal to be completed.
- The acquisition of KEMET Corporation (KEM) by Yageo Corporation on June 9, 2020. It took 211 days for this deal to be completed.
- The acquisition of Stemline Therapeutics (STML) by Menarini Group on June 10, 2020. It took 37 days for this deal to be completed.
- On June 10, 2020, Simon Property Group (SPG) announced that it has exercised its contractual rights to terminate its merger agreement with Taubman Centers (TCO).
Top 10 deals with largest spreads:
|CDOR||07/22/2019||NexPoint Hospitality Trust (N/A)||$11.10||$4.45||06/30/2020||149.44%||3409.06%|
|GNW||10/23/2016||China Oceanwide Holdings Group Co., Ltd. (N/A)||$5.43||$3.15||06/30/2020||72.38%||1651.19%|
|FSCT||02/06/2020||Advent International (N/A)||$33.00||$22.46||06/30/2020||46.93%||1070.54%|
|GILT||01/29/2020||Comtech Telecommunications Corp. (CMTL)||$8.61||$6.22||10/31/2021||38.35%||27.77%|
|GRUB||06/10/2020||Just Eat Takeaway.com N.V. (TKAYF)||$74.96||$60.38||03/31/2021||24.14%||30.39%|
|CETV||10/27/2019||PPF Group N.V. (N/A)||$4.58||$3.69||06/30/2020||24.12%||550.22%|
|FIT||11/01/2019||Google LLC (GOOG)||$7.35||$6.11||06/30/2020||20.29%||462.97%|
|TIF||11/25/2019||LVMH Moët Hennessy Louis Vuitton SE (LVMUY)||$135.00||$119.12||06/30/2020||13.33%||304.12%|
|LACQ||12/30/2019||GTWY Holdings Limited (N/A)||$11.50||$10.45||06/30/2020||10.05%||229.22%|
|DLPH||01/28/2020||BorgWarner Inc. (BWA)||$14.45||$13.45||12/31/2020||7.43%||13.57%|
With three new deals announced, the aggregate deal consideration went up to $529.29 billion last week.
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