Merger Arbitrage Mondays - Healthcare Trust Of America To Combine With Healthcare Realty Trust

Merger activity increased last week with six new deals announced and six deals completed. Three of the six new deals announced were potential deals in the works.

Healthcare Trust of America HTA

Founded in 2006, Healthcare Trust of America is a healthcare focused REIT and the largest operator of dedicated medical office buildings (MOB) in the United States. The company owns real estate though 461 on-campus and off-campus properties around hospitals and Universities in 32 states. We added HTA to our ‘Deals in the Works‘ tool on October 6, 2021, when Bloomberg reported that activist investor Elliott Investment Management was pushing for the company to launch a strategic review that included a potential sale of the company. The price of HTA was $30.02 before the announcement. On February 28, 2022 HTA announced that it is combining with Healthcare Realty Trust Incorporated HR in a cash plus stock deal.

We wrote the following about HTA for our October 2021 Mid-Month Update:

HTA has performed admirably through the COVID-19 pandemic as demand for medical office buildings remained strong. While other REITs, like those focused on retail and office buildings, took big hits to their earnings and cut dividends, HTA managed to increase its funds from operations (FFO) and dividends through the pandemic as you can see from the FFO chart below. REITs like to use Funds From Operations (FFO) because it removes the impact of depreciation as an expense, which can be quite large for real estate focused companies. It also removes any gains and losses from the sale of certain real estate assets or change of control of certain assets.

The company has been continuously increasing its dividend for the last 8 years, albeit by small amounts. The current forward dividend is $1.30 at a 73.63% payout ratio and works out to a yield of 3.89%. So why is Elliott agitating for change? While the company managed to grow through the pandemic on account of its upscale properties and their locations close to hospitals and Universities, growth has overall been anemic with revenue dipping slightly into negative territory in three out of the four quarters in 2019 before rebounding to mid-single digit growth from Q4 2019. The company also saw its CEO, Scott D. Peters resign on August 2nd and a Board member stepped in as an interim CEO. The resignation appears to be the result of a whistleblower complaint that prompted an internal investigation by the company. There are scant details available about the complaint but the company indicated that it “does not believe that the matters that are the subject of the ongoing investigation will have a material adverse impact on the Company’s financial condition or results of operations.”

Buying a company in anticipating of a potential deal materializing is a speculative trade but sometimes the signals are strong and shift the odds in your favor. I have been increasing my exposure to hard assets in recent months and even if a deal does not materialize, I wouldn’t mind holding a healthcare REIT that generates a nearly 4% yield that I can DRIP into more shares.

Renewable Energy Group REGI

Founded in 1996 and headquartered in Ames, Iowa, Renewable Energy Group is an international producer of sustainable fuels that lower greenhouse gas emissions. We added REGI as a potential deal in the works on February 23, 2022, when Bloomberg reported that the company was  exploring options after receiving takeover interest, including selling itself. REGI's price after this announcement was $41.30. On February 23, 2022, Bloomberg reported that Chevron (CVX) was in advanced talks to buy Renewable Energy for about $3 billion. The deal materialized on February 28, 2022, when Chevron and REGI announced that they had entered into a definitive agreement under which Chevron will acquire the outstanding shares of REG for $3.15 billion, or $61.50 per share, representing a premium of 40.38%.

Cedar Realty Trust CDR

Founded in 1984 and headquartered in Port Washington, New York, Cedar Realty Trust is a real estate investment trust (REIT) that invests in shopping centers. Cedar's largest tenants include Giant Food, Shop Rite, Stop & Shop, Dollar Tree, LA Fitness, Big Y, Home Depot, Staples, BJ's Wholesale Club and TJX Corporation.

We added Cedar as a potential deal in the works on September 9, 2021, after an announcement by the company, stating that its Board of Directors had initiated a dual-track process to review the company’s strategic alternatives in order to maximize shareholder value.  As part of this process, Cedar was exploring, among other alternatives, a potential sale or merger involving the entire company, and alternatively the potential sale of its core grocery-anchored shopping center portfolio. CDR's price after this announcement was $17.

On March 2, 2022, Cedar entered into definitive agreements, to sell a portfolio of 33 grocery-anchored shopping centers to a joint venture between a fund managed by DRA Advisors and KPR Centers for $840 million. After this, Cedar will sell its remaining assets to Wheeler Real Estate Investment Trust for $29 per share in cash, representing a premium of 16.6% to Cedar's closing share price on March 2, 2022, and a 70.6% premium to the company's closing share price on September 9, 2021, the last day of trading prior to the announcement of the dual-track review of strategic alternatives.

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 were two new deals announced in the Deals in the Works section last week. On Sunday March 6, 2022, The Wall Street Journal reported two potential deals:

• Ryan Cohen, the billionaire co-founder of  Chewy, who owns a 9.8% stake in Bed Bath & Beyond BBBY through his investment firm, RC Ventures LLC is pushing the housewares retailer to streamline its strategy and explore strategic alternatives.
• Oasis Petroleum OAS and Whiting Petroleum WLL are close to entering into an all stock deal, that could be unveiled early this week.

SPAC Arbitrage

There were four new SPAC IPOs filed and one new SPAC combination announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

• Perfect Corp. and Provident Acquisition PAQC announced a definitive agreement for a business combination that would result in Perfect becoming a publicly-traded company.

Weekly Spread Changes:

The table below shows weekly spread changes between February 25 and March 4, 2022.

Symbol Quote Acquiring Company Acquiring Company Quote Current Spread Last Week Spread Spread Change Weekly Deal Type PVG 14.89 Newcrest Mining Limited N 19.66 6.74% 1.71% 5.03% All Stock VG 19.75 Ericsson ERIC 8.1 6.33% 3.09% 3.24% All Cash TMX 41.63 Rentokil Initial plc RTOKY 32.28 32.12% 28.99% 3.13% Special Conditions TEN 18.86 Apollo Global Management, Inc. APO 63.48 6.04% 3.57% 2.47% All Cash NPTN 15.13 Lumentum Holdings Inc. LITE 93.33 5.75% 4.23% 1.52% All Cash PNM 45.84 Avangrid, Inc. AGR 45.03 9.73% 11.95% -2.22% All Cash ZGNX 26.68 UCB (N/A)   4.95% 7.28% -2.33% Special Conditions EXTN 6.23 Enerflex Ltd. (EFX.TO) 8.1 4.28% 7.52% -3.24% All Stock SJI 34.6 Infrastructure Investments Fund (N/A) 0.00 4.05% 8.73% -4.68% All Cash JOBS 56.2 Garnet Faith Limited (N/A)   8.54% 54.55% -46.01% All Cash

Deal Statistics:

Total Number of Deals Closed in 2022 36 Total Number of Deals Not Completed in 2022 3 Total Number of Pending Deals Cash Deals 43 Stock Deals 13 Stock & Cash Deals 9 Special Conditions 9 Total Number of Pending Deals 74 Total Deal Size $634.78 billion

New Deals:

• The acquisition of Healthcare Trust of America HTA by Healthcare Realty Trust Incorporated (HR) for $10.74 billion in a stock plus cash deal. Under the terms of the agreement, each share of HR common stock will be exchanged for one share of HTA common stock, at a fixed ratio. In addition, a special cash dividend of $4.82 per share will be distributed to HTA shareholders. We added HTA as a potential deal to the Deals in the Works section on October 6, 2021,  and the price after the news of the potential deal came out was $31.38.
• The acquisition of Renewable Energy Group REGI by Chevron Corporation CVX for $2.75 billion or $61.50 per share in cash. We added REGI as a potential deal to the Deals in the Works section on February 23, 2022,  and the price after the news of the potential deal came out was $41.30.
• The acquisition of First Horizon Corporation FHN by The Toronto-Dominion Bank TD for $13.4 billion or $25 per share in cash. If the transaction does not close prior to November 27, 2022, First Horizon shareholders will receive, at closing, an additional US$0.65 per share on an annualized basis for the period from November 27, 2022 through the day immediately prior to the closing.
• The acquisition of IntriCon Corporation IIN by Altaris Capital Partners for $183.22 million or $24.25 per share in cash.
• The acquisition of Prudential Bancorp PBIP by Fulton Financial Corporation FULT for $142.1 million. Under the terms of the Merger Agreement, Prudential shareholders will receive Fulton common stock based on a fixed exchange ratio of 0.7974 Fulton shares and $3.65 in cash for each Prudential share they own.
• The acquisition of Cedar Realty Trust CDR by Wheeler Real Estate Investment Trust WHLR for $291.3 million. Cedar Realty Trust entered into an agreement to sell a portfolio of 33 grocery-anchored shopping centers to a joint venture between a fund managed by DRA Advisors LLC and KPR Centers for $840.0 million. After completion of the above-described transactions, Cedar Realty Trust and its remaining assets will be sold to Wheeler Real Estate Investment Trust for $29 per share in cash, which will be distributed to shareholders upon completion. We added CDR as a potential deal to the Deals in the Works section on September 9, 2021,  and the price after the news of the potential deal came out was $17.

Deal Updates:

• On February 28, 2022, Newcrest Mining Limited NCMGY announced that it has received approval under the Investment Canada Act and that all regulatory approvals have now been obtained in relation to the acquisition of Pretium Resources PVG.
• On March 1, 2022, CorePoint Lodging CPLG announced that its stockholders voted to approve the acquisition of CorePoint by a joint venture between affiliates of Highgate and Cerberus Capital Management. The transaction is expected to close as early as March 3, 2022.
• On March 1, 2022, Level One Bancorp LEVL announced that its stockholders voted to approve the previously announced merger agreement with First Merchants Corporation FRME.
• On March 2, 2022, Microsoft MSFT has received clearance from the U.K.'s Competition and Markets Authority over its Nuance Communications NUAN deal, marking the last approval.
• On March 3, 2022, CMC Materials CCMP announced that its stockholders voted to approve the previously announced merger agreement with Entegris ENTG.
• On March 3, 2022, SPX FLOW FLOW announced that its stockholders approved the proposed merger of the company and Redwood Star Merger Sub, an affiliate of Lone Star Funds.
• On March 3, 2022, FTS International FTSI announced that its stockholders approved the proposed merger of the company with ProFrac Holdings.
• On March 3, 2022, Canada's industry minister, François-Philippe Champagne, said that he will not permit the wholesale transfer of Shaw Communications's SJR wireless licences to Rogers Communications RCI as part of a buyout bid for Shaw.
• On March 3, 2022, Welbilt WBT announced that it has entered into a definitive agreement to sell its Manitowoc Ice business to Pentair PNR for approximately $1.6 billion in cash, on a cash free and debt free basis, subject to customary post-closing adjustments. Commenting on the transaction, Bill Johnson, Welbilt’s President and CEO, said, “We believe that this transaction is a good outcome for both Welbilt and Manitowoc Ice. We are confident that the successful closing of this transaction will pave the way for Welbilt to complete its sale to Ali Group, while Manitowoc Ice will benefit from Pentair’s focus on water solutions and its diversified customer base and product lines.”
• On March 4, 2022, UCB announced that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in connection with UCB’s pending acquisition of Zogenix ZGNX expired on March 3, 2022.
• On March 4, 2022, People's United Financial PBCT announced receipt of regulatory approval from the Board of Governors of the Federal Reserve System to complete the previously announced acquisition of People's United by M&T Bank Corporation (MTB).

Closed Deals:

• The acquisition of IHS Markit (INFO) by S&P Global SPGI on February 28, 2022. It took 455 days for this deal to be completed.
• The acquisition of Atlantic Capital Bancshares ACBI by SouthState Corporation SSB on March 1, 2022. It took 221 days for this deal to be completed.
• The acquisition of McAfee MCFE by Investor Group comprised of Advent, Permira, Crosspoint Capital, CPP Investments, GIC and ADIA on March 1, 2022. It took 113 days for this deal to be completed.
• The acquisition of State Auto Financial Corporation STFC by Liberty Mutual Holding Company on March 1, 2022. It took 232 days for this deal to be completed.
• The acquisition of CorePoint Lodging CPLG by Highgate and Cerberus Capital Management on March 3, 2022. It took 115 days for this deal to be completed.
• The acquisition of Nuance Communications NUAN by Microsoft MSFT on March 4, 2022. It took 326 days for this deal to be completed.
• The acquisition of FTS International (FTSI) by ProFrac Holdings on March 4, 2022. It took 133 days for this deal to be completed.

Top 10 deals with largest spreads:

Symbol Announced Date Acquiring Company Closing Price Last Price Closing Date Profit Annualized Profit TMX 12/14/2021 Rentokil Initial plc (RTOKY) $55.00 $41.63 12/31/2022 32.12% 39.07% CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $25.75 $21.4 06/30/2022 20.33% 63.96% ATVI 01/18/2022 Microsoft Corporation (MSFT) $95.00 $81.43 06/30/2023 16.66% 12.65% SAFM 08/09/2021 Cargill and Continental Grain Company (N/A) $203.00 $179.51 06/30/2022 13.09% 41.17% TSEM 02/15/2022 Intel Corporation (INTC) $53.00 $46.93 02/15/2023 12.93% 13.64% BRG 12/20/2021 Blackstone Real Estate (N/A) $29.85 $26.6 06/30/2022 12.22% 38.44% PNM 10/21/2020 Avangrid, Inc. (AGR) $50.30 $45.84 06/30/2022 9.73% 30.61% JOBS 06/21/2021 Garnet Faith Limited (N/A) $61.00 $56.2 03/31/2022 8.54% 124.70% COHR 03/25/2021 II-VI Incorporated (IIVI) $279.43 $258.36 05/31/2022 8.16% 34.62% SAVE 02/07/2022 Frontier Group Holdings, Inc. (ULCC) $24.12 $22.32 12/31/2022 8.09% 9.84%

Conclusion:

Regulatory issues were top of mind for arbitrageurs last week. Canadian telecoms Rogers Communications (RCI) and Shaw Communications (SJR) were expected to run into regulatory issues and shortly after the deal was announced, the spread on the deal eclipsed 23%. The spread on the deal came down significantly in the ensuing months and despite Canada's industry minister, François-Philippe Champagne, objections, the spread on the deal continued to narrow and is now just 7.5%. The Justice Department's probe into poultry producers could be a hurdle for Sanderson Farms (SAFM) sale to Continental Grain and Cargill. According to an article on SeekingAlpha, China's antitrust authority is said to have informed II-IV (IIVI) and Coherent (COHR) about some issues it has with the planned purchase of Coherent.