The buyers group – AmTrust Financial Services (AFSI) Merger
Spread: 5% Closing: H2 2018
A controversial deal in which a buyers group made of financial services company Stone Point Capital, AmTrust CEO Barry D. Zyskind and Karfunkel Family (combined the buyers hold over 50% of AFSI) are acquiring insurance firm AmTrust. This deal has received shareholder approval in June (one of the shareholders is Carl Icahn and he also backed the deal), while communication on the remaining regulatory approvals has been very minimal. In the recent filings AmTrust only comments on that is “Consummation of the merger remains subject to certain customary closing conditions, including regulatory approvals.” The initial closing expectation was H2 2018 and as far as I know it was not amended, so taking that into account as well as the fact that 5 months have already passed since shareholder approval, this situation might be an opportunity to earn 5% in a month.
Despite that, this deal got a lot of opposition from certain shareholders, especially Arca Capital (owns over 2%), which tried to get in a way of this deal numerous times arguing that the price is heavily undervaluing the company.
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They also tried to side with Carl Icahn, who owns 9.4% of the company, however the investor changed sides after the price got increased to current $14.75 (up from initial $13.5)
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made their own website (not very sophisticated), where you can find some of their arguments against the deal.
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and even launched an investigation on whether the parties affiliated with buyers group were included as part of the minority shareholders, which would make the vote invalid. I think these accusations do not seem very credible, especially when they brought them after 4 months passed since the voting.
AmTrust has been growing at a high speed (30% on average since 2010) and since 2014 has traded mostly over $20 or even $30 per share, but it has been repeatedly accused of accounting malpractice, which drew attention of short sellers. In 2017 it has been seriously probed by SEC and FBI, which hit the company’s shares hard making them fall bellow $10. AFSI has recently disclosed that it has been under investigation by SEC for five years already. It is obvious that this and other controversies have deleted the trust from AmTrust and the price fall has made many people lose their money, so it is understandable that shareholders feel hurt and are willing to fight for their money. Despite that, the opposition’s main argument of AmTrust business still being strong and this deal being a rip-off seems a bit exaggerated to me. The offer prices the target company at over 1x to BV, which seems to be like a fair price considering a slip up of the business since 2017 Q3. Moreover, given the months ago already received shareholder approval and the support from Carl Icahn, I think there is nothing much to say here except that most likely this deal is done.
IBM (IBM) – Red Hat (RHT) Acquisition
Spread: 10%. Closing: H2 2019
Probably the most covered merger recently and not without a reason. It is the largest acquisition by IBM ($30bn) so far and it comes with a substantial premium to unaffected price (62%), moreover it trades at an unusually large spread so far (merger consideration: $190 cash/share). The businesses are complementary, potential synergies look good, moreover impressive + constant growth rate of RHT over the past several years definitely packs a nice punch to the deal, however analysts are concerned with regulatory approvals and some argue that IBM is overpaying. This together with the long time until closing may partially explain the spread. I think it is too early to make any decisions now and more time is needed to see how the regulatory processes will develop.
II-VI (IIVI) – Finisar (FNSR) Acquisition
Spread: 4% Closing: mid 2019
Optoelectronics producer II-VI is acquiring optical communications company Finisar. The deal is approved by both boards and is subject to both companies’ shareholder as well as regulatory and customary approvals. This acquisition will double the size of II-VI in both revenues and employees, however the market did not like this acquisition too much (IIVI shares dropped 26% since the announcement) as Finisar has not been looking so good recently given that while the industry is booming, its growth rate has been considerably slower (and even negative in the last year) comparing to the buying company and other competitors. So apparently IIVI management thinks it can run the company better and they might be right. Merger consideration: $15.60 cash + 0.2218x IIVI shares per FNSR share.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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