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Merger arbitrage
It’s a golden age of merger arbitrage. There are many great opportunities worth capital allocations. A caveat: I don’t use this strategy the way many funds do. I don’t apply a lot of leverage. I don’t pick subjectively safe deals. I’m not fixated on a low-volatility rate of return. Instead, I tend to wait until something has gone horribly wrong. When a spread explodes. When a deal completely breaks. Arbs tend to be sloppy sellers. Broken deals can fall outside of their mandates. If they get enough pain, they may have to deleverage without price sensitivity. That is when I like to add.
Who?
Anaplan (NYSE:PLAN) is a cloud-based platform offering in-memory data storage and data calculation for organizations around the world. They help companies budget, plan, and test scenarios.
What?
Thoma Bravo re-cut their $66 cash acquisition of Anaplan to $63.75. The deal secured US antitrust approval and awaits only the target’s shareholder approval. Owl Rock Capital (ORCC), Blackstone (BX), Golub Capital (GBDC), and Apollo (APO) are financing the deal. The re-cut was opportunistic in that the buyer wanted a lower price in a weak market. However, the target gave them a clear out under their definitive merger agreement through a covenant violation, so it was on them. Merger agreement violations are like birth control failures: It’s a binary. You’re either in or out of the contract and once you’re out, the buyer can walk, so they have a lot of leverage to re-cut. But I don’t think that will happen twice.
When?
PLAN holders will probably approve the deal on Tuesday, June 21, at 11 AM EST. The deal should close by July.
Where?
They are global, operating in North and South America, Europe, the Middle East, Africa, and Asia.
Why?
Markets tend to overreact to recent, vivid events. In this case, a buyer lowering the price. But today, you can capture a 17% IRR through the end of this month by buying this stock at the market price and collecting the deal price.
|
Target |
Ticker |
Parity |
Spread |
IRR |
|
Anaplan |
(PLAN) |
$63.750 |
$0.585 |
17% |
Conclusion
This isn’t the juiciest yield in arbland (in fact it’s among the tightest of my current spreads I own) but it has a positive expected value and is a way to probably not lose money in June 2022, which isn’t nothing. This is short and perhaps sweet so that this idea can be shipped while spreads are wide. It’s a rare publicly-available series highlighting some of the ideas in the Sifting the World price alerts.
TL; DR
Buy PLAN.
Whoring
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