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 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.

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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 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

Deal Statistics:

Total Number of Deals Closed in 2020 68
Total Number of Deals Not Completed in 2020 10
Total Number of Pending Deals
Cash Deals 23
Stock Deals 16
Stock & Cash Deals 3
Special Conditions 3
Total Number of Pending Deals 45
Total Deal Size $529.29 billion

New Deals:

  1. The acquisition of Finjan Holdings (FNJN) by Fortress Investment Group for $7.2 million or $1.55 per share in cash.
  2. The acquisition of Grubhub (GRUB) by Just Eat (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 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.
  3. 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.
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Deal Updates:

  1. 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%.
  2. 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.

Closed Deals:

  1. 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.
  2. The acquisition of KEMET Corporation (KEM) by Yageo Corporation on June 9, 2020. It took 211 days for this deal to be completed.
  3. The acquisition of Stemline Therapeutics (STML) by Menarini Group on June 10, 2020. It took 37 days for this deal to be completed.

Terminated Deals:

  1. 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:

Symbol AnnouncedDate AcquiringCompany ClosingPrice LastPrice ClosingDate Profit AnnualizedProfit
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 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%
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With three new deals announced, the aggregate deal consideration went up to $529.29 billion last week.

Disclosure: I am/we are long TECD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: I hold a long position in Tech Data Corporation (TECD). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.

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