Merger Arbitrage Opportunities Abound as Early 2022 M&A Activities Give Premium Prices

Merger Arbitrage Opportunities Abound as Early 2022 M&A Activities Give Premium Prices

USA News Group – When a takeover deal is solidified, often there’s a brief window of opportunity for patient investors called a merger arbitrage, which plays upon a risk premium in the chance a deal falls apart. This is especially notable when companies give values much higher than current trading prices per share on their takeover targets. Last year in 2021, over 63,000 M&A deals set the all-time record with whopping $5.9 trillion, with deals in the US alone up by 82%. Now analysts at both Morgan Stanley and KPMG are predicting 2022 to be another strong year. So far their predictions seem to be coming to fruition, as the merger arbitrage enthusiasts are weighing the potential for deals on the table, such as for Petroteq Energy, Inc. (OTC:PQEFF) by Viston United Swiss AG, LHC Group, Inc. (NASDAQ:LHCG) by UnitedHealth Group Incorporated (NYSE:UNH), and Nielsen Holdings plc (NYSE:NLSN) by and investment group led by Brookfield Business Partners (NYSE:BBU, BBUC) (TSX:BBU, BBUC).

One current example of a premium takeover offer is the one for clean technology company Petroteq Energy, Inc. (OTC:PQEFF), from renewable energies and clean technologies investment firm Viston United Swiss AG.

On the table is a 100% all cash deal for C$0.74 (US$0.59) per common share. At this price, Viston has given Petroteq a valuation of 279% over the closing price of C$0.195 on the TSX-V August 6, 2021—the day prior to the Canadian exchange’s cease trade order began.

This valuation also comes at 1,032% over the TSX-V volume-weighted average price of $0.065 per common share for the 52-week period preceding April 15, 2021—the last trading day prior to the publication of the voluntary purchase offer in Germany.

And while shares have ceased trading on the Canadian exchange, today investors can still trade shares in the US under the OTC symbol PQEFF. With just weeks left to go before the April 14, 2022 deadline is elapsed, shares of PQEFF are still trading at only US$0.35, meaning there’s still a near 69% premium left available for those who follow through offering their shares to the offerer through the official takeover offer website

Petroteq specializes in oil production, having developed proprietary technologies that enable the company to produce oil without water, waste tailings ponds and emissions. In addition to sustainable oil production, Petroteq’s technology cleans oil sands of all hydrocarbons, creating a purified sand as part of an overall ESG strategy.

The offer comes from Viston United Swiss AG, a firm created to invest in renewable energies and clean technologies, as well as in the environmental protection industry.

Petroteq’s Board Members have already shared their unanimous intention to tender their shares through the offer. Now the company’s Founder, Former Chairman and CEO Alex Blyumkin has announced his support for the takeover bid.

According to the press release, Blyumkin has already tendered shares to the takeover-bid from Viston Swiss United AG. Recognizing that he holds a significant number of shares, Blyumkin’s tender will assist Viston with acquiring the majority needed to complete their Offer.

“After thorough consideration of all aspects of the Viston Offer, the advice provided by Haywood and consulting with its other advisors, the Board has unanimously determined to recommend that Shareholders accept the Viston Offer and tender their Common Shares,” said the Board of Directors in their official statement.

So far, the company as a whole has also announced its willingness to assist Viston with its CFIUS filings.

"We are particularly pleased with the recognition this shows of our technology which we have taken from inception to commercial viability as a one of its kind in oil sands eco-friendly, green extraction,” said former Petroteq Chairman and CEO, Dr. Gerald Bailey, who retired in January. “We had always forecast a great future. However, we respect the value of this offer to shareholders and if it can be achieved it will reward our many dedicated supporters."

Shares of healthcare provider LHC Group, Inc. (NASDAQ:LHCG) rose after the Wall Street Journal reported that UnitedHealth Group Incorporated (NYSE:UNH) agreed to by the company for about $5.4 billion in cash.

As per reports of the deal, UnitedHealth has agreed to pay $170 a share for LHC, marking an 8.1% premium to the previous day’s closing price of $157.23 per share. By midday after the new hit, the price had already risen to $167.34, representing a 6.42% increase in just the first few hours of trading.

LHC has approximately 30,000 employees who provide more than 12 million annual in-home patient-focused interventions, according to the statement.

UnitedHealth expects the LHC deal to be neutral to its outlook for adjusted profit per share in 2022, with a modest add in 2023, according to Reuters. LHC Group co-founders Keith and Ginger Myers will invest $10 million in the health insurer’s stock, following the close of the deal.

Global leader in third-party audience membership, data and analytics firm Nielsen Holdings plc (NYSE:NLSN) recently approved an all-cash $16-billion transaction, including assumption of debt that values the company at $28 per share.

The proposal came from Brookfield Business Partners (NYSE:BBU, BBUC) (TSX:BBU, BBUC) together with institutional partners, putting in $2.65 billion by way of preferred equity, convertible into 45% of Nielsen’s common equity.

The announcement immediately caused a spike in the value of Nielsen shares by more than 20%, moving up from $22.21 to $26.72 before the first day of trading closed.

“We are pleased to invest in Nielsen, a market-leading company that is deeply embedded in the media ecosystem as a trusted service provider to its customers," said Dave Gregory, Managing Partner, Brookfield Business Partners. “Nielsen is well positioned to lead the industry into the next generation of audience measurement across all channels and platforms."

The Nielsen Board of Directors had voted unanimously to support the acquisition proposal, which represented a 10% premium over a previous proposal and a 60% premium over Nielsen's unaffected stock price as of March 11, 2022, the last trading day before market speculation regarding a potential transaction.

"After a thorough assessment, the Board determined that this transaction represents an attractive outcome for our shareholders by providing a cash takeout at a substantial premium, while supporting Nielsen's commitment to our clients, employees and stakeholders,” said James A. Attwood, Chairperson of Nielsen's Board of Directors. “The Consortium sees the full potential of Nielsen's leadership position in the media industry and the unique value we deliver for our clients worldwide."

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