Merger Arbitrage Mondays - Zendesk To Be Acquired By Permira and Hellman & Friedman

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Merger activity increased significantly last week with seven new deals announced and five deals completed. Two of these seven new deals were over $1 billion in size and one of them was a potential deal in the works that went through a rather unusual roller coaster process as outlined below.

Zendesk ZEN

Zendesk, a software-as-a-service products provider, entered into a definitive agreement on October 28, 2021 to acquire Momentive (MNTV), the parent of SurveyMonkey. Zendesk's price at the time of this announcement was $119.01 and it was the start of a saga that saw the Momentive deal scuttled and Zendesk finally ending up inking a deal to be acquired by an investor group led by Permira and Hellman & Friedman.

Here is a time line of all the events that transpired since the Momentive deal was announced:

• On November 30, 2021, activist firm Jana Partners sent a letter to Zendesk (ZEN), urging the company to abandon the Momentive (MNTV) deal.
• On January 3, 2022, Jana Partners announced that it had sent a letter to the Zendesk Board of Directors highlighting shareholder opposition, revealing new concerns regarding the proposed acquisition of Momentive , and calling on the Board to immediately terminate the transaction.
• On January 11, 2022, Janus Henderson Investors joined Jana to oppose Zendesk's Momentive deal.
• On February 10, 2022, Zendesk rejected an unsolicited, non-binding proposal from a consortium of private equity firms to acquire all of Zendesk’s outstanding shares in an all-cash transaction valued at $16 billion, in the range of $127-$132 per share.
• On February 14, 2022 Proxy advisory firms Institutional Shareholder Services and Glass, Lewis & Co told Zendesk investors to vote against the takeover of Momentive Global, calling it too risky.
• On February 16, 2022 Jana nominated four directors to Zendesk board, arguing the company must be rehabilitated after an unpopular attempt to buy Momentive Global.
• On February 25, 2022, Zendesk terminated the agreement and plan of merger with Momentive Global, after it did not receive the approval of its stockholders.
• On February 28, 2022, we added Zendesk as a potential deal in the works, when JANA Partners sent a letter to the board of Zendesk stating that it believed Zendesk required either significant board change, or in the absence of such change, should be sold after the failed Momentive deal. Zendesk's price at this point was $116.67
• On March 17, 2022, Jana urged Zendesk shareholders to vote its four nominees to the company's board at the company's annual meeting.
• On April 18, 2022, Bloomberg reported that Zendesk is exploring a potential sale.
• On June 9, 2022, Zendesk said it would continue as an independent public company after the software firm completed a strategic review.
• On June 14, 2022, The Wall Street Journal reported that Zendesk was in talks to settle with Jana Partners, which could involve Mikkel Svane stepping down as chief executive and some changes to the board.
• On June 24, 2022, Zendesk entered into a definitive agreement to be acquired by an investor group led by investment firms Permira and Hellman & Friedman in an all-cash transaction valued at approximately $10.2 billion or $77.50 per share in cash, representing a premium of approximately 34% over Zendesk’s closing stock price on June 23, 2022.

After this rollercoaster ride, the price that Zendesk finally settled for was 40% below the mid-point of the original offer made by the same group of investors in February. According to an article by The Wall Street Journal,

"Zendesk stalled for time by dragging its feet on setting an annual meeting. A meeting date was finally set for Aug. 17—three months later than normal. Jana was apoplectic, announcing earlier this month an intention to sue Zendesk. But The Wall Street Journal reported last week that the two sides were in settlement talks, over a deal that would have involved Zendesk Chief Executive Officer Mikkel Svane stepping down. Reviving a buyout may seem a victory compared with that outcome, but it’s a pyrrhic one."

The deal is expected to be completed in the fourth quarter of 2022. According to the merger agreement, the termination fee to be paid by Zendesk, if it terminates the agreement, will be $254 million and the termination fee to be paid by the investor group in case they terminate the agreement, will be $610 million.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) that automatically updates itself during market hours.

Deals In The Works

There was one new deal announced in the Deals in the Works section last week.

SPAC Arbitrage

There were three new SPAC combinations announced last week. You can find new SPAC IPO announcements in our SPACs tool here.

• On June 20, 2022, Human Longevity, built by the pioneers of the human genome sequencing effort, and Freedom Acquisition I Corporation (FACT) signed a non-binding letter of intent for a proposed business combination that would result in HLI becoming a publicly listed company.
• On June 21, 2022, Goldenstone Acquisition (GDST) Limited announced that it has entered into a definitive merger agreement with Roxe Holding, a blockchain-based payments company.
• On June 23, 2022, Adara Acquisition (ADRA) announced the signing of a definitive business combination agreement with Alliance Entertainment Holding Corporation.

Weekly Spread Changes:

The table below shows weekly spread changes between June 17 and June 24, 2022.

Symbol Quote Acquiring Company Acquiring Company Quote Current Spread Last Week Spread Spread Change Weekly Deal Type MBII 0.977 Bioceres Crop Solutions Corp. (BIOX) 12.96 16.73% 8.21% 8.52% All Stock SIMO 81.71 MaxLinear, Inc. (MXL) 34.88 31.04% 27.01% 4.03% Cash Plus Stock EXTN 4.56 Enerflex Ltd. (EFX.TO) 6.26 8.75% 5.54% 3.21% All Stock EMCF 34.02 Farmers National Banc Corp. (FMNB) 15.05 -4.89% -7.83% 2.94% All Stock RDBX 9.75 Chicken Soup for the Soul Entertainment, Inc. (CSSE) 7.79 -93.05% -95.54% 2.49% All Stock TEN 16.7 Apollo Global Management, Inc. (APO) 52 19.76% 28.95% -9.19% All Cash BLCT 1.47 Multelements Limited (N/A)   8.84% 19.40% -10.56% All Cash SJR 29.65 Rogers Communications Inc. (RCI) 48.44 9.27% 21.67% -12.40% Special Conditions GSV 0.366 Orla Mining Ltd. (ORLA) 3.14 2.35% 18.22% -15.87% All Stock ELSE 6.1 Mobile X Global, Inc. (N/A) 0.00 -20.82% 0.00% -20.82% All Cash

Deal Statistics:

Total Number of Deals Closed in 2022 86 Total Number of Deals Not Completed in 2022 4 Total Number of Pending Deals Cash Deals 59 Stock Deals 18 Stock & Cash Deals 8 Special Conditions 8 Total Number of Pending Deals 93 Aggregate Deal Consideration $973.39 billion

New Deals:

• The acquisition of Convey Health Solutions Holdings (CNVY) by TPG Capital for $1.1 billion or $10.5 per share in cash.
• The acquisition of U.S. Well Services (USWS) by ProFrac Holding (PFHC) for $546.29 million in an all stock deal. Under the terms of the transaction, U.S. Well Services shareholders will receive ProFrac Holding common shares at a ratio of 0.0561.
• The acquisition of Ocean Bio-Chem (OBCI) by OneWater Marine (ONEW) for $125 million or $13.08 per share in cash.
• The acquisition of F-star Therapeutics (FSTX) by invoX Pharma for $161 million or $7.12 per share in cash.
• The acquisition of Radius Health (RDUS) by Gurnet Point Capital for $890 million. Under the terms of the agreement, shareholders of Radius Health will receive $10.00 per share in cash plus a CVR of $1.00 per share payable upon TYMLOS® (abaloparatide) net sales reaching $300 million (inclusive of U.S. sales and Japan royalties or supply payments based on supply of TYMLOS for sale in Japan) during any consecutive 12-month period prior to December 31, 2025.
• The acquisition of USA Truck (USAK) by DB Schenker for $435 million or $31.72 per share in cash.
• The acquisition of Zendesk (ZEN) by Permira and Hellman & Friedman for $10.2 billion or $77.5 per share in cash. We added ZEN as a potential deal to the Deals in the Works section on February 28, 2022 and the price after the news of the potential deal came out was $116.67.

Deal Updates:

• On June 20, 2022, The Wall Street Journal reported that JetBlue Airways (JBLU) is continuing its quest to buy Spirit Airlines (SAVE) by increasing its offer to $33.50 in cash per Spirit share and strengthening its commitment to divest itself of assets to get regulatory approval for the deal. Spirit Airlines (SAVE) confirmed receipt of a revised proposal from JetBlue Airways to acquire all of the outstanding shares of Spirit's common stock.
• On June 20, 2022, ManTech International Corporation (MANT) announced that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act), in connection with the proposed acquisition of ManTech by The Carlyle Group (CG) has expired.
• On June 21, 2022, shareholders of LHC Group (LHCG) approved the company’s merger with Optum, a wholly-owned subsidiary of UnitedHealth Group (UNH) at a special meeting of shareholders.
• On June 21, 2022, The National Security Group (NSEC) announced that its stockholders have voted at a special meeting to adopt the previously announced agreement and plan of merger with VR Insurance Holdings.
• On June 21, 2022, SailPoint (SAIL) received written notice from the UK Department for Business, Energy and Industrial Strategy (“BEIS”) that BEIS has concluded that no further action is to be taken in relation to the proposed transaction under the UK National Security and Investment Act 2021, as amended.
• On June 21, 2022, Twitter's (TWTR) board of directors unanimously recommended that the social media company's shareholders vote to approve its sale to Elon Musk at a special meeting of shareholders.
• On June 22, 2022, Sierra Oncology (SRRA) announced that the special meeting of stockholders will be on June 29, 2022.
• On June 23, 2022, BlueCity Holdings Limited (BLCT) announced that the special meeting of stockholders will be on July 29, 2022.
• On June 23, 2022, Tufin Software Technologies (TUFN) announced that the German Ministry of Economic Affairs and Climate Action has cleared the merger under the foreign investment law of Germany by issuing a certificate of non-objection and French Ministry of Economy, Finance and Industrial and Digital Sovereignty, has confirmed that the merger is out of the scope of review of French foreign investment law.
• On June 23, 2022, CynergisTek (CTEK) announced the expiration of the initial “go-shop” period set forth in the previously announced merger agreement with Clearwater Compliance.
• On June 23, 2022, Poly (POLY) announced that its stockholders voted to approve the merger agreement pursuant to which Poly will be acquired by HP Inc. (HPQ).
• On June 23, 2022, Cedar Realty Trust (CDR) reported that following a hearing on both the Sydney and Kim motions for preliminary injunction, the court issued an order denying both motions for preliminary injunction.
• On June 23, 2022,  Tivity Health (TVTY) announced that it has received shareholder approval to be acquired by Stone Point Capital.
• On June 23, 2022, Points.com (PCOM) announced that holders of Points' common shares voted overwhelmingly in favor of the special resolution approving the previously announced plan of arrangement, pursuant to which a wholly-owned subsidiary of Plusgrade will acquire all of the issued and outstanding common shares of Points for US$25.00 in cash per common share.
• On June 23, 2022, Rogers Communications (RCI) and Shaw Communications (SJR) confirmed to Canada's Competition Tribunal that they will seek mediation on their planned C$26B merger, with questions continuing to center on Shaw's wireless business.
• On June 24, 2022, Entegris (ENTG) and CMC Materials (CCMP) announced that China’s State Administration for Market Regulation has given antitrust clearance for Entegris’ previously announced acquisition of CMC Materials. The transaction has now received all required regulatory clearances. Entegris and CMC Materials anticipate that the transaction will close on or about July 6, 2022.
• On June 24, 2022, shareholders of Cornerstone Building Brands (CNR) approved the company’s merger with Clayton, Dubilier & Rice at a special meeting of shareholders.
• On June 24, 2022, Spirit Airlines (SAVE) and Frontier Group Holdings (ULCC) entered into Amendment No. 2 to their Agreement and Plan of Merger. The Second Amendment increases the amount of the cash consideration payable to Spirit stockholders by an additional $2.00 per share, for an aggregate cash amount. In an odd twist, Spirit shareholders will receive part of the merger consideration in advance as a $2.22 per share special cash dividend to be paid as of a record date, yet to be determined. Frontier will front a non-interest bearing loan to Spirit to facilitate the payment of this special dividend. The Second Amendment also increases the reverse termination fee payable by Frontier to $350,000,000.

Closed Deals:

• The acquisition of Anaplan (PLAN) by Thoma Bravo on June 22, 2022. It took 92 days for this deal to be completed.
• The acquisition of Summer Infant (SUMR) by Kids2 on June 22, 2022. It took 98 days for this deal to be completed.
• The acquisition of Datto Holding (MSP) by Kaseya on June 23, 2022. It took 73 days for this deal to be completed.
• The acquisition of Preferred Apartment Communities (APTS) by Blackstone Real Estate Income Trust on June 23, 2022. It took 127 days for this deal to be completed.
• The acquisition of Trecora Resources (TREC) by Balmoral Funds on June 24, 2022. It took 44 days for this deal to be completed.

Top 10 deals with largest spreads:

Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as "special situation" deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.

Symbol Announced Date Acquiring Company Closing Price Last Price Closing Date Profit Annualized Profit TWTR 04/25/2022 Elon Musk (N/A) $54.20 $39.41 12/31/2022 37.53% 72.86% SIMO 05/05/2022 MaxLinear, Inc. (MXL) $107.07 $81.71 06/30/2023 31.04% 30.70% BKI 05/04/2022 Intercontinental Exchange, Inc. (ICE) $85.00 $66.21 06/30/2023 28.38% 28.07% ATVI 01/18/2022 Microsoft Corporation (MSFT) $95.00 $77.94 06/30/2023 21.89% 21.65% VMW 05/26/2022 Broadcom Inc. (AVGO) $142.50 $117.96 04/30/2023 20.80% 24.65% TEN 02/23/2022 Apollo Global Management, Inc. (APO) $20.00 $16.7 12/31/2022 19.76% 38.36% NLSN 03/29/2022 Evergreen Coast Capital Corporation (N/A) $28.00 $23.53 12/31/2022 19.00% 36.88% VG 11/22/2021 Ericsson (ERIC) $21.00 $17.68 08/22/2022 18.78% 120.25% CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $27.75 $23.66 12/31/2022 17.29% 33.56% MBII 03/16/2022 Bioceres Crop Solutions Corp. (BIOX) $1.14 $0.977 09/30/2022 16.73% 63.62%

Conclusion:

With seven new deals announced, five active deals completed and eighteen deal updates, it was quite an active week on the M&A front. The week started with JetBlue Airways (JBLU) increasing its offer for Spirit Airlines (SAVE) and ended with Frontier Group Holdings (ULCC) amending its original offer for Spirit by increasing it by $2 per share and offering an unusual $2.22 per share special dividend that would be paid in advance of deal closing. Several active deals received regulatory approvals and it was encouraging to see the PLAN acquisition close, albeit at a renegotiated lower price.

Disclaimer: I have long positions in Biohaven Pharmaceutical (BHVN), Twitter (TWTR), First Horizon (FHN), Tower Semiconductor (TSEM), Healthcare Trust of America (HTA), TEGNA (TGNA) and Bluerock Residential Growth REIT (BRG). 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.