Merger Arbitrage Mondays – May 10, 2010

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May 9, 2010 | Merger Arbitrage | | Author Asif

Given the turn in the market last week and the fear of sovereign defaults, I expected deal activity to slow down or spreads to increase for existing deals. However we saw the same number of deals last week as in the week prior with 6 new deals announced and one deal that closed. As for the increase in spreads, we saw the spread widen for the acquisition of The Allied Defense Group (ADG) by Chemring. The 40% discount that ADG is trading to the original offer price of $7.25 indicates that the market is assuming that this merger will not succeed in its current form. ADG has once again moved the special meeting of shareholders to approve the Chemring offer to June 1, 2010 after Chemring indicated it needs more time to complete its review of ADG.

The spread in the acquisition of WuXi PharmaTech (WX) by Charles River Labs (CRL) also appeared to increase to 17.4% on no particular news. However the deal of $11.25 in cash plus $10 in Charles River stock was subject to a collar described in the merger announcement as follows “if the Charles River Average Price is equal to or greater than $43.1726, then the exchange ratio will be fixed at 0.2316, and if the Charles River Average Price is equal to or less than $37.1486, then the exchange ratio will be fixed at 0.2692″. Since the deal has breached the low end of the collar, the total deal price dropped to $19.44 and the spread is only 7.4% now.

The six new deals announced include the acquisition of inVenitv Health (VTIV) by Thomas H. Lee Partners for $26.00 per share in cash, the acquisition of Interactive Data Corporation (IDC) by Investment firms Silver Lake and Warburg Pincus for $33.86 per share in cash, the acquisition of Stanley (SXE) by the CGI Group for $37.50 per share in cash, the acquisition of SenoRx (SENO) by Bard for $11.00 per share in cash, the acquisition of HealthTronics (HTRN) by Endo Pharmaceuticals for $4.85 per share in cash and the acquisition of Continental Airlines (CAL) in an all stock merger with United (UAUA) in which Continental shareholders will receive 1.05 shares of United common stock for each Continental common share they own.

The deal that closed was the acquisition of White Electronic Designs (WEDC) by Microsemi Corporation, which closed on May 03, 2010.

  Symbol Anno.
Date
Acquiring
Company
Closing
Value
Closing
Price
Last
Price
Closing
Date
Profit Annu.
Profit
+ ADG 1/19/2010 Chemring Group Plc $59 million 7.25 5.16 6/30/2010 40.50% 295.68%
+ AYE 2/11/2010 FirstEnergy $8.5 billion 23.39 19.95 3/31/2011 17.24% 19.61%
+ Q 4/22/2010 Century Link $10.6 billion 5.5 5.08 4/21/2011 8.27% 8.85%
+ SSE 2/23/2010 Naugatuck Valley Financial Corp $19.5 million 7.25 6.75 8/16/2010 7.41% 28.16%
+ WX 4/26/2010 Charles River Laboratories $1.6 billion 19.44 18.1 12/31/2010 7.40% 11.70%
+ STBK 3/18/2010 Roma Financial Corp $14.7 million 2.52 2.374 8/16/2010 6.15% 23.38%
+ SWWC 3/3/2010 Institutional Investors $275 million 11 10.46 5/17/2010 5.16% 269.19%
+ SII 2/19/2010 Schlumberger $7.5 billion 43.79 41.88 9/30/2010 4.56% 11.89%
+ DCP 4/12/2010 Cerberus Capital Management $1.5 billion 17.55 16.8 11/15/2010 4.46% 8.81%
+ BNE 2/24/2010 RR Donnelley $481 million 11.5 11.01 9/30/2010 4.45% 11.60%
+ RCNI 3/5/2010 Emera Inc. $1.2 billion 15 14.37 9/30/2010 4.38% 11.43%
+ CFL 1/18/2010 Tyco International $2.9 billion 42.5 40.72 6/26/2010 4.37% 34.69%
+ ME 4/15/2010 Apache $2.7 billion 23.74 22.75 9/30/2010 4.35% 11.35%
+ VTIV 5/6/2010 Thomas H. Lee Partners $1.1 billion 26 25 9/30/2010 4.00% 10.43%
+ ORCD 3/16/2010 eMusic $12.77 million 2.05 1.9801 8/16/2010 3.53% 13.42%
+ IDC 5/4/2010 Silver Lake & Warburg Pincus $3.4 billion 33.86 32.72 9/30/2010 3.48% 9.08%
+ PINN 2/24/2010 Investor Group lead by Scotia Waterous (USA) $11 million 0.34 0.33 5/17/2010 3.03% 158.01%
+ MAM 3/12/2010   $75.7 million 45 43.75 12/31/2010 2.86% 4.51%
+ CKR 3/1/2010 Apollo Management VII $694 million 12.55 12.21 5/17/2010 2.78% 145.20%
+ WEL 4/9/2010 Halliburton Company $240 million 3 2.94 9/30/2010 2.04% 5.32%
+ BWY 3/29/2010 Madison Dearborn Partners, LLC ("MDP") $915 million 20 19.61 8/16/2010 1.99% 7.56%
+ CYBS 4/21/2010 Visa Inc. $2.0 billion 26 25.5 9/30/2010 1.96% 5.11%
+ SXE 5/7/2010 CGI Group $904 million 37.5 36.79 9/30/2010 1.93% 5.03%
+ ATSI 4/29/2010 Medtronic $350 million 4 3.93 9/30/2010 1.78% 4.64%
+ PFWD 4/16/2010 Oracle Corp. $685 million 17 16.71 6/30/2010 1.74% 12.67%
+ RISK 3/1/2010 MSCI $1.55 billion 22.19 21.84 7/16/2010 1.60% 8.86%
+ RBI 3/15/2010 affiliate of Oncap Management Partners L.P.   13.55 13.34 8/16/10 1.57% 5.99%
+ PRPX 2/17/2010 L.B. Foster Co. $112 million 11.71 11.56 6/30/2010 1.30% 9.47%
+ TUTR 3/26/2010 Thoma Brava $141 million 5.6 5.53 7/31/2010 1.27% 5.70%
+ SENO 5/5/2010 Bard $200 million 11 10.87 9/30/2010 1.20% 3.12%
+ CRN 4/19/2010 GeoGroup $685 million 26.34 26.04 9/30/2010 1.15% 3.00%
+ IUSA 3/8/2010 CCMP $460 million 8 7.91 6/30/2010 1.14% 8.31%
+ MIL 3/1/2010 Merck $6 billion 107 105.81 9/30/2010 1.12% 2.93%
+ SKIL 2/12/2010 consortium of private equity funds $1.2 billion 11.25 11.13 5/31/2010 1.08% 18.74%
+ HTRN 5/5/2010 Endo Pharmaceuticals $223 million 4.85 4.8 7/31/2010 1.04% 4.69%
+ BELM 3/29/2010 Avnet $252 million 7 6.93 6/30/2010 1.01% 7.37%
+ TWPG 4/26/2010 Stifel Financial $300 million 7.25 7.18 6/30/2010 0.97% 7.12%
+ CAL 5/3/2010 United $1.2 billion 18.78 18.61 12/31/2010 0.91% 1.44%
+ ARD 4/4/2010 SandRidge Energy Inc. $1.6 billion 32.36 32.08 9/30/2010 0.87% 2.28%
+ NGA 4/1/2010 AZZ Inc. $125.6 million 7.5 7.45 8/31/2010 0.67% 2.21%
+ DCAI 4/14/2010 U.S. Renal Care $112 million 11.25 11.18 5/31/2010 0.63% 10.88%
+ ZNT 2/18/2010 Fairfax Financial Holdings $I.4 billion 38 37.82 5/17/2010 0.48% 24.82%
+ PONE 4/26/2010 GTCR $828 million 15.5 15.43 6/30/2010 0.45% 3.31%
+ CXG 3/22/2010 Consol Energy Inc. $363 million 38.25 38.13 5/5/2010 0.31% -22.97%
+ NADX 4/5/2010 GDC Holdings Inc. $100 million 17 16.96 6/30/2010 0.24% 1.72%
+ PALM 4/28/2010 Hewlett – Packard $1.2 billion 5.7 5.7 7/31/2010 0.00% 0.00%
+ SMMX 4/5/2010 Accelrys Inc. $186 million 5.47 5.53 6/30/2010 -1.08% -7.92%
+ MIR 4/12/2010 RRI Energy In. $1.6 billion 10.38 10.5 12/31/2010 -1.14% -1.81%
+ DTG 4/26/2010 Hertz $1.2 billion 41 48.01 12/31/2010 -14.60% -23.07%
+ CCE 2/25/2010 The Coca-Cola Company $12.3 billion   25.84 10/1/2010 -100.00 -258.87%



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