February 24, 2020 – The most notable event in M&A over the past month was the court approval of T-Mobile’s acquisition of Sprint.
Market participants had left this deal for dead, with many believing it only had a ~30% chance of succeeding. Sprint’s stock was trading at a nearly 50% gross discount to the all-stock merger consideration. Due to the positive court decision, which makes closing within the next month highly probable, Sprint’s stock rallied 130% thus far in February. The market got this one wrong.
The other interesting dynamic is that T-Mobile had the opportunity to play hardball with Sprint and re-cut the deal terms. While the market was expecting a roughly 10% reduction in the consideration for Sprint, T-Mobile announced that they were reducing the consideration payable only to controlling-shareholder Softbank, which owns about 84% of Sprint, leaving arbitrageurs unscathed.
We saw two large deals in the wealth management space. Franklin Resources announced its $6.6 billion merger with Legg Mason and Morgan Stanley reported its $13 billion acquisition of E*TRADE, which is the largest financial deal since the global financial crisis.
Real estate investment firms Starlight and KingSett Capital teamed up on a go-private of Northview Apartment REIT, which at $4.8 billion is the largest Canadian residential real estate deal on record (our database goes back 10 years).
At the end of January, Centene closed its massive $17.3 billion acquisition of WellCare and Platinum Equity closed its nearly $3 billion leveraged buyout of Cision.
While the market was previously expecting an increased offer, Kirkland Lake Gold ended up closing its friendly, all-stock acquisition of Detour Gold on the original terms of the deal.
The below AlphaRank Merger Monitor represents Accelerate’s proprietary analytics database on all announced liquid U.S. mergers. The AlphaRank Merger Arbitrage Effective Yield represents the average annualized return of all outstanding merger arbitrage spreads and is typically viewed as an alternative to fixed income yield.
Each individual merger is assigned a risk rating:
- AA – a merger arbitrage rated ‘AA’ has the highest rating assigned by AlphaRank. The merger has the highest probability of closing.
- A – a merger arbitrage rated ‘A’ differs from the highest-rated mergers only by a small degree. The merger has a very high probability of closing.
- BBB – a merger arbitrage rated ‘BBB’ is of investment grade and has a high probability of closing.
- BB – a merger arbitrage rated ‘BB’ is somewhat speculative in nature and has a greater than 90% probability of closing.
- B – a merger arbitrage rated ‘B’ is speculative in nature and has a greater than 85% probability of closing.
- CCC – a merger arbitrage rated ‘CCC’ is very speculative in nature. The merger is subject to certain conditions that may not be satisfied.
- NR – a merger rated NR is trading either at a premium to the implied consideration or a discount to the unaffected price.
The AlphaRank merger analytics database is utilized in running Accelerate’s merger arbitrage investment strategy.
* AlphaRank is exclusively produced by Accelerate Financial Technologies Inc. (“Accelerate”). Visit AccelerateShares.com for more information.