Merger Arbitrage Bets Have Steadied as Stocks Bounce Back

Andrew Bary Companies ABBV AGN APO MC.FR SPG TCO TECD AbbVie Apollo Global Management Simon Property Group Taubman Centers Tech Data LVMH Allergan Roy Behren Ownership Changes Acquisitions/Mergers/Shareholdings Acquisitions/Mergers Corporate Actions Corporate/Industrial News Mergers Equity Markets Content Types Factiva Filters C&E Industry News Filter ABBV AGN APO G/FED LVMUY MC.FR N/CAC N/CNW N/DJN N/TNM N/WER SPG TCO TECD WFC Barrons.com Barrons Blogs Wires CODES_REVIEWED Alternative Investments Companies Consumer Health Investing Private Equity US Volatility author Andrew Bary author|Andrew Bary topicid 6151 name Andrew Bary extractedtext Andrew Bary rank 1 codetype author code andrew_bary nameformat surname_first author Andrew Bary id Andrew Bary barrons_display_subject BARCOMP barrons_display_subject|BARCOMP canbedisplaysubject true codetype BARRONS_DISPLAY_SUBJECT name Companies source MANUAL code BARCOMP value BARCOMP status modified co abvbba co|abvbba country US symbol ABBV codetype co displayname AbbVie why occur extractedtext AbbVie source FACTIVA seoname abbvie name AbbVie countrycode US relevancerange low chartingsymbol STOCK/US/XNYS/ABBV fcode abvbba fullextractedtext AbbVie ticker ABBV confidence 100 subcat com code abvbba relevance 26 significance prominent confidencerange high exchange NYSE exchangeisocode XNYS status modified onlinesignificance prominent co apolmn co|apolmn country US symbol APO codetype co displayname Apollo Global Management why occur extractedtext Apollo Global Management source FACTIVA seoname apollo_global_management name Apollo Global Management countrycode US relevancerange low chartingsymbol STOCK/US/XNYS/APO fcode apolmn fullextractedtext Apollo Global Management ticker APO confidence 100 subcat com code apolmn relevance 24 significance prominent confidencerange high exchange NYSE exchangeisocode XNYS status modified onlinesignificance prominent co simpo co|simpo country US symbol SPG codetype co displayname Simon 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Allergan countrycode US relevancerange low chartingsymbol STOCK/US/XNYS/AGN fcode wtsnph fullextractedtext Allergan ticker AGN confidence 93 subcat com code wtsnph relevance 29 significance prominent confidencerange high exchange NYSE exchangeisocode XNYS status modified onlinesignificance prominent company AGN company|AGN name Allergan significance PROMINENT company ABBV company|ABBV name AbbVie significance PROMINENT company MC.FR company|MC.FR name LVMH significance PROMINENT company TECD company|TECD name Tech Data significance PROMINENT company APO company|APO name Apollo Global Management significance PROMINENT company TCO company|TCO name Taubman Centers significance PROMINENT company SPG company|SPG name Simon Property Group significance PROMINENT djn ABBV djn|ABBV codetype djn why occur source FACTIVA code abbv name ABBV significance passing fcode ABBV onlinesignificance passing-mention djn APO djn|APO codetype djn why occur source FACTIVA code apo name APO significance 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news_tab_url https://www.barrons.com/articles/merger-arbitrage-bets-have-steadied-as-stocks-bounce-back-51585153644 Photograph by Ethan Miller/Getty Images for Tiffany & Co. Merger Arbitrage Bets Have Steadied as Stocks Bounce Back Merger Arbitrage Bets Have Steadied as Stocks Bounce Back Merger Arbitrage Bets Have Steadied as Stocks Bounce Back

Merger arbs are more confident that deals like LVMH-Tiffany and AbbVie-Allergan will be completed even with the stock market turmoil.

Merger Arbitrage Bets Have Steadied as Stocks Bounce Back

Is ‘Arb-ageddon’ over? Arbs are more confident that deals like LVMH-Tiffany and AbbVie-Allergan will be completed even with the market turmoil.

mailto:andrew.bary@barrons.com Merger Arbitrage Bets Have Steadied as Stocks Bounce Back By Andrew Bary Photograph by Ethan Miller/Getty Images for Tiffany & Co.

The hard-hit merger arbitrage market has improved recently as investors get more comfortable that marquee deals will close. The sharp rally in the stock market on Tuesday helped.

“Despite the recent bounce in merger arb spreads, we believe the group still offers attractive returns,” wrote analysts at Wells Fargo Securities in a note Wednesday. “Current action in the space suggests we have left ‘Arb-ageddon.’ ”

The Wells Fargo analysts cited moves by the Federal Reserve to support the corporate bond market as bolstering confidence.

Annualized spreads on many arbitrage deals are well into the double digits even after the recent rally.

“It was a panic as everybody took risk off,” Roy Behren, co-portfolio manager of the Merger Fund, tells Barron’s. “I’ve never seen anything like this in 25 years, including the financial crisis. Deals will be completed. There is no reason that the Allergan/AbbVie shouldn’t be completed and why LVMH shouldn’t acquire Tiffany.”

The Merger Fund, run by Westchester Capital Management, was off about 4% year-to-date through Tuesday after gaining about 2% in the session, according to Bloomberg.

Allergan (AGN), whose shares were off $1.36, to $169.49, on Wednesday, now trades about $9 below the current value of AbbVie’s (ABBV) cash-and-stock offer. That spread got as wide as $20 a share last week. Tiffany (TIF) was off 56 cents, to $126.05, a spread of nearly $9 to the offer of $135 a share in cash from LVMH Moët Hennessy Louis Vuitton (MC. France).

Tiffany dipped as low as $105 last week amid rumored forced sales by leveraged arbitragers. Before the market downturn of the past month, the spread was less than $1 a share.

Spreads remain wide on many cash deals. Tech Data (TECD), whose shares were off 26 cents, to $122, trades $23 a share below a $145 a share deal from Apollo Global Management (APO).

And Taubman Centers, whose shares were down 31 cents, at $43.41, trades about $9 below the $52.50 deal price from mall giant Simon Property Group (SPG).

There is some concern that deals will be recut to reduce the purchase price, but most merger contracts make that difficult for buyers to achieve.

The arb market, Behren says, “is as attractive as we’ve seen in the past decade.”

Write to Andrew Bary at andrew.bary@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.