Merger Arbs With Wide Spreads (Apr 2024)

With another quarter in the books, I am refreshing SSI review of all merger arbs with wide spreads. This is a continuation of my previously published pieces in Jul’22, Sep’22, Jan’23, Apr’23Jul’23, Nov’23, and Jan’24.

Since my last update, five merger arbs have played out – three of those closed successfully (MIXT, GTH, and NBLY.TO), and three failed (YI, SAVE and IRBT).

In this post you will find 16 merger arbitrage situations with my quick takes on all the cases and reasons for the spread.

Some of these arbs have already been covered on SSI, including CNSL, BEST, and BATL.

A printable PDF as well as full descriptions below.
MA with Wide Spreads page 0001

Battalion Oil Corporation (BATL)

  • Buyer: Fury Resources
  • Consideration: $9.8
  • Spread: 81%
  • Exp. Closing: Q3’24
  • Main Risk: Likely termination of the transaction.

A pure-play oil and gas exploration company is getting acquired by a private peer, Fury Resources. The key reason for the wide spread is the availability of financing. The funding part of the deal has always been questionable as can be seen from constant changes in the deal structure during the transaction negotiation period. Eventually, the board, desperate to keep the merger on track, agreed to sign the agreement without the finalized funding. However, the board insisted on one thing: Ruckus had to provide a guarantee that they could at least cover the termination fee and deposit it into an escrow account. The initial agreement stipulated that the buyer would deposit $10 million into escrow before signing the merger agreement (completed) and then another $10 million by January 23. Despite the buyer’s reassurances, only the first portion was deposited. The deadline for the second deposit was initially extended, but then the requirement itself was changed. BATL has the right to terminate the deal if the buyer failed to provide evidence of funding by April 10th. The deadline has now passed, and BATL management is currently evaluating its options, including the potential termination of the merger agreement.

BATL is covered in more detail on SSI here.

GAN Limited (GAN)

  • Buyers: Sega Sammy (6460:T)
  • Consideration: $1.97/share.
  • Spread: 47%
  • Exp. Closing: Q4’24
  • Main risk: Termination of the deal if gaming licenses are not received.

B2B/B2C online casino software provider GAN is getting acquired by the Japanese conglomerate Sega Sammy at $1.97/share. The existing spread seems to be explained by uncertainty surrounding securing gaming licenses in a number of geographies, most notably Chile as well as the US. Chilean online gaming space has been undergoing regulatory changes recently and it is not clear if GAN will be eligible to receive an operating license after a pending online gambling-related bill passes. Meanwhile, the merger agreement includes a provision allowing Sega Sammy to terminate the transaction if the Chilean government enacts any laws that make GAN’s operations in the country illegal. Recently, the interim CFO was appointed to a permanent role “to steer the merger with Sega Sammy.” It seems that there is still a long way to go before the transaction closes. Potential downside in a deal-break scenario is likely to be substantial.

GAN is covered in more detail on SSI here.

Capri Holdings Limited (CPRI)

  • Buyer: Tapestry (TPR)
  • Consideration: $57/share
  • Spread: 45%
  • Exp. Closing: 2024
  • Main Risk: Regulatory approvals.

This is a large all-cash merger in the fashion industry, combining luxury brands Versace, Jimmy Choo, and Michael Kors (owned by CPRI), and Coach, Kate Spade, and Stuart Weitzman (TPR). The transaction has already been approved by the target’s shareholders. The key reason for the spread is the regulatory pressure, including pending approvals in the US and EU. The Chinese regulatory approvals are granted. In November, the parties received a request for additional information from the FTC. Based on recent reports, the FTC is planning to challenge the deal. If the merger is approved, Tapestry/Capri would be the 4th largest luxury player globally. However, the market share of the combined company in “affordable luxury” is likely much higher, anywhere between 30-50% in the US, which is probably the key concern for US regulators.

Hawaiian Holdings (HA)

  • Buyer: Alaska Air Group (ALK)
  • Consideration: $18/share
  • Spread: 38%
  • Exp. Closing: Q2’25
  • Main Risk: Regulatory approval.

Hawaiian Airlines is getting acquired by Alaska Airlines in an all-cash transaction at $18/share. The key reason for the wide spread is the potential issues with antitrust approval, particularly in light of the blocked merger between SAVE and JBLU earlier this year. The deal was already hit with a second request review from the DOJ. The parties quickly complied with the request and agreed not to enter into the transaction for 90 days post-compliance. While the transaction would create the fifth-largest airline in the US, the combined company would only capture an estimated 6% of the market, which is significantly below the c. 80% market share held by the four largest players. Moreover, the two airlines only compete head-to-head on a small fraction of their combined routes (12 out of 433).

Albertsons Companies (ACI)

  • Buyers: The Kroger Co. (KR)
  • Consideration: $27.25/share
  • Spread: 34%
  • Exp. Closing: Q1’24
  • Main risk: Regulatory approval.

The main risk is antitrust approval as the merger would combine the two of the biggest supermarket companies in the country, particularly in the Northwest where ACI and KR together hold a commanding market share. Antitrust concerns have been raised by a number of parties. FTC has already filed a lawsuit to block the merger. Washington and Colorado have separately sued to block the deal. The trials are expected to begin at the end of the summer. Clearly, the proposed sale of 413 Albertsons stores to C&S Wholesale Grocers hit a snag with regulators. They were concerned that the intended Albertson divestitures could end up like the divestures in the previous Albertson / Safeway merger back in 2015, where the buyer of these stores went bankrupt, closing all the stores and leading to reduced competition. Reportedly, the parties are considering even more divestitures, hoping this would help convincing the court. The potential downside in a deal break scenario could be minimal as ACI shares are currently trading at around pre-announcement levels.

United States Steel Corporation (X)

  • Buyer: Nippon Steel Corporation (5401:T)
  • Consideration: $55/share
  • Spread: 33%
  • Exp. Closing: Q3’24
  • Main Risk: Opposition from politicians and other stakeholders.

The bidding war for US Steel has culminated in a merger with Japan’s largest steelmaker, Nippon Steel, at $55/share. The spread exists due to risks surrounding regulatory approvals. At this point, the deal seems to be dead in the water given the sheer amount of political and regulatory pressure. Multiple senators, as well as White House officials, have voiced opposition to the transaction on national security grounds. Both of the key presidential candidates stated that they would block the merger. DOJ has also just launched an in-depth investigation of the deal. On top of this, the opposition from the United Steelworkers (USW) union, whose approval is necessary for the deal to close, has not abated despite many attempts from Nippon Steel to reach a mutually beneficial agreement. At this point, it is hard to see how this transaction gets done.


  • Buyer: Management
  • Consideration: $2.88/share
  • Spread: 24%
  • Exp. Closing: TBD
  • Main Risk: Non-binding offer.

BEST, a Chinese freight delivery and supply chain management services provider, is getting acquired by a buyer consortium (with a 49% economic and 94% voting stake) led by its founder/CEO/chairman at $2.88 per ADS. Alibaba is BEST’s largest shareholder, owning 26%, and will be rolling its equity stake into the privatization. The transaction appears to be a strategic move for Alibaba, which has recently launched its cross-border delivery business and might be looking for tighter integration with BEST services for geographical expansion. However, after Alibaba has decided to delay the IPO of its logistics arm Cainiao due to unfavorable market conditions, the market is became much more skeptical on the likelihood of BEST privatization. The unfavorable market conditions for Cainiao’s IPO seem to be at least partially related to the ongoing fierce price war in the Chinese express delivery market. Falling prices, coupled with softening volume growth, have significantly reduced operating margins across the entire industry in Q3 2023.

BEST is covered in more detail on SSI here.

Discover Financial Services (DFS)

  • Buyer: Capital One Financial Corporation (COF)
  • Consideration: 1.0192 COF stock
  • Spread: 18%
  • Exp. Closing: Q1’25
  • Main Risk: Regulatory approval.

Payment network and credit card issuer Discover Financial is being acquired by Capital One in an all-stock transaction. The spread can largely be explained by the required regulatory approvals from the Fed, OCC, as well as the DOJ. Several senators, led by Elizabeth Warren, have already asked the regulators to block the transaction. The key issue is the consumer loan business of the two companies. Currently, 80% of the credit card loan market is held by 10 players, with COF and DFS ranking 4th and 6th in size. The combined company would be the largest issuer of credit card loans in the US. The DFS’s payment network business is unlikely to raise concerns, given that DFS is the smallest of the payment network players and COF is not in this market at all.

HomeStreet, Inc. (HMST)

  • Buyer: FirstSun Capital Bancorp (FSUN)
  • Consideration: 0.4345 FSUN stock
  • Spread: 19%
  • Exp. Closing: 2024
  • Main Risk: No borrow for hedging..

HomeStreet, the regional bank focused on multifamily lending, is getting acquired by a larger peer, FirstSun Capital Bancorp, in an all-stock transaction. There is no geographical overlap between the banks, so regulatory problems are unlikely to surface. The spread seems to be driven mainly by the lack of borrow creating difficulties in arbitraging this setup. The spread has widened in the recent sell-off of the banking sector. The downside to the pre-announcement prices stands ar 20%.


  • Buyer: Synopsys (SNPS)
  • Consideration: $197 + 0.3450 SNPS
  • Spread: 16%
  • Exp. Closing: H1’25
  • Main Risk: Regulatory approval.

Chip design hardware and software maker Synopsys is acquiring the multi-purpose engineering design software company Ansys. The spread can be explained by the number of requirement of high number of regulatory approvals across several jurisdictions, and particularly in China. Reportedly, China’s antitrust regulator, SAMR, is already engaging with third parties about the extent of horizontal overlap between the two companies. The business of the two companies do not overlap directly as SNPS manufactures tools for designing the chips themselves, while Ansys specializes in software for evaluating larger electronic systems where those chips are utilized. However, both companies hold strong positions in key industries, such as semiconductors and EVs, and this has subject the deal to closer scrutiny. This is especially pertinent in light of the Biden Administration’s decision to put some of Ansys’s products on the export control list, in an effort to prevent the resale of US technology to the Chinese military. As a reminder, China has recently blocked the takeover of Tower Semiconductor by Intel, likely in retaliation for the high-tech export restrictions.

First Financial Northwest (FFNW)

  • Buyer: Global Federal Credit Union
  • Consideration: $23.18-23.75/share
  • Spread: 15%
  • Exp. Closing: Q4’24
  • Main Risk: Regulatory approval + long timeline.

First Financial Northwest, a community bank with operations in Washington, has agreed to combine with Global Federal Credit Union. The key reason for the spread seems to be pending approvals from a number of state and federal regulators. Even though historically most of similar bank acquisitions by credit unions have closed successfully. However, recently the HSBI acquisition by Vystar as well as Premier Bank acquisition by GreenState Union were blocked on regulatory grounds. The pending acquisition of FFNW would be the second-largest bank purchase by a credit union. There are also some concerns about regional overlap between the two entities. Global operates 27 branches in Washington, which will increase to 42 branches following the purchase of FFNW. The number of Global’s branches will be second only to the $29.1 billion BECU in Tukwila, Wash., which operates 63 locations. The expected closing timeline is c. 9 months, with up to an additional 5 months before receiving the distributions.

Olink Holding (OLK)

  • Buyer: Thermo Fisher Scientific (TMO)
  • Consideration: $26/share
  • Spread: 14%
  • Exp. Closing: Q2’24
  • Main Risk: Antitrust approval, uncertain timeline, large downside.

Sweden-based life science company Olink is getting acquired by one of the largest life sciences companies in the world, Thermo Fisher. The spread mainly exists due to the last two pending antitrust approvals in the UK and Germany. The German regulators are currently in Phase 2 review of the transaction. Meanwhile, the UK regulators finished the Phase 1 review on February 23rd without any updates since. The regulatory scrutiny is not entirely surprising – TMO is already a TOP 3 player in the mass spectrometry and proteomics markets in Europe, with OLK not far behind. However, it’s worth noting that this is still a high-growth industry with a bunch of new entrants. Moreover, the transaction has already been cleared in Sweden, the largest market for OLK in Europe.

Catalent (CTLT)

  • Buyer: Novo Nordisk (NVO)
  • Consideration: $63.5/share
  • Spread: 13%
  • Exp. Closing: Q4’24
  • Main Risk: Regulatory approval.

One of the leading global CDMO businesses, Catalent, is being acquired by a multinational pharmaceutical giant, Novo Nordisk. The key reason for the spread is the potential regulatory pushback from the US and EU. Novo has already withdrawn and refilled merger notification reports with both the DOJ and FTC, giving the regulators more time to evaluate the transaction. Both the EU and US regulators are likely to investigate whether the merger will impact fill & finish service availability for the other drug makers. Reportedly, similar concerns were raised by Lilly (LLY), which is one of Catalent’s key customers and a key competitor of Novo Nordisk in the diabetes and obesity segment. There are concerns that Novo Nordisk could leverage the acquisition to restrict Catalent’s service availability to LLY and others.

Juniper Networks, Inc. (JNPR)

  • Buyer: Hewlett Packard Enterprise Company (HPE)
  • Consideration: $40/share
  • Spread: 8%
  • Exp. Closing: Q4’24-Q1’25
  • Main Risk: Regulatory approval.

JNPR, the designer and developer of network hardware is getting acquired by its peer HPE. The shareholders of both companies have already approved the transaction. The key reason for the remaining spread are the potential regulatory hurdles and the resulting timeline extensions. The parties have to obtain approvals in the US and potentially from China. The antitrust approval in the US could pose a bigger challenge given the significant overlap in the routers and switches sub-segments. However, the combined company would have only 10% combined market share in switches segment (vs Cisco at 47%) and also only 10% in routers segment (vs 36% for Cisco) – so the merger does not seem to pose any risk to the competitiveness of the industry. SAMR approval is even less likely to be an issue as the presence of the both companies in China is small (HPE carries out activities in China via JV with HPC).

Amedisys (AMED)

  • Buyer: UnitedHealth Group (UNH)
  • Consideration: $101/share
  • Spread: 8%
  • Exp. Closing: 2024
  • Main Risk: Antitrust approval.

Home healthcare provider Amedisys has scrapped its all-stock merger with infusion services provider Option Care Health and has instead agreed to combine with healthcare insurance giant UnitedHealth. The spread might be explained by a likely regulatory challenge, as AMED is one of the largest home healthcare providers in the US, while UNH has recently acquired another large industry player, LHC Group. The parties have received a request for more information from the DOJ, and rumors suggest DOJ is considering a lawsuit to block the deal. The Oregon Health Authority has also started a closer review of the proposed acquisition. Despite scrutiny of the deal and the trasnaction is not likely to lead to antitrust concerns – the home healthcare market is highly fragmented, and even after acquisition of AMED and LHC Group UNH would still have less than 10% market share.

Consolidated Communications (CNSL)

  • Buyer: Searchlight Capital Partners
  • Consideration: $4.70/share
  • Spread: 7%
  • Exp. Closing: Q1’25
  • Main Risk: Long timeline.

Wireline/fiber telecommunications provider CNSL is getting acquired by its major shareholder PE firm Searchlight Capital Partners (owns 34%). The shareholder approval has already been granted. The only reason for the spread is the prolonged closing timeline as the merger is set to be finalized only by Q1’25. The extended timeline is understandable given the requirement of approval from a number of regulatory bodies, including the FCC, antitrust regulators, CFIUS, and the California State Public Utility Commission. These regulatory reviews are customary and are not expected to pose any significant risks.

CNSL is covered in more detail on SSI here.


14 thoughts on “Merger Arbs With Wide Spreads (Apr 2024)”

  1. For HMST, is there any way to track the FED/FDIC approval? Is there like with HSR also a waiting time?

      • Those are left. Sweden is largest market and was cleared; so was US which is clearly the risky one these days.

    • It’s a combination of no borrow, potentially large downside, and some risk that FSUN will walk away or cut the terms again.

      HMST is a pretty bad, money losing bank, which has serious problems with its deposit structure and cost. Net interest margin and earnings fell off the cliff following the interest rate increase, which made the company’s deposits very expensive. Compared to January of this year, when the deal was just announced, it’s now clear that rates will stay high longer than expected. HMST reported very bad Q1 results with net loss of $0.4/share during the quarter and deposits dropping by 4% QoQ.

      FSUN has already cut the consideration once. Furthermore, it increased the PIPE size substantially. Are regulators pressing for an extra safety pillow here? The market is clearly afraid there might be another cut or that the deal could get terminated altogether.

      I’m not a bank analyst, but from where I stand, this merger has been fraught with issues from the start. HMST is definitely not a compelling target. The only strategic angle here is nice optics. FSUN would do a huge markdown on HMST’s book and then amortize it over 5 following years, visually inflating the EPS. The projected numbers do look nice on paper, but I don’t think it actually creates any real value. BANC/PACW already tried a very similar merger structure (huge write-downs, large PIPE, big cost savings, etc.), and the deal even made more sense from the geographical synergy angle, but the combined company now trades with an even wider discount than before. I guess FSUN/HMST merger is mostly intended to dress up the buyer for an uplisting that would finally introduce liquidity to the legacy holders.

      With all of that, it’s pretty difficult to gauge FSUN’s ongoing commitment to the merger. Maybe you could say that the fact it still keeps paying $m to advisors, etc. to keep the show running and has even now orchestrated an expanded pipe implies that the buyer is determined to close this deal. However, for some reason, I remain unenthusiastic about this. Would appreciate any pushback.

  2. Any thoughts about CPRI/TPR? The FTC “accessible luxury handbag” market definition sounds quite absurd to me.

    • Yes, FTC’s market definition sounds absurd. However, I find it very hard to handicap regulatory/court decisions. This is a $4bn market cap company, so plenty of much smarter investor than me are in this arb. And I think the market is pricing the risks (whatever these might be) correctly.

      JBLU/SAVE failed merger comes to mind as an example of judge making a decision that seemed to contradict common sense.


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