Merger Arbitrage Commentary: As at September 30, 2023

The Picton Mahoney Fortified Arbitrage Alternative Fund Cl F returned 1.82%, and Picton Mahoney Fortified Arbitrage Plus Alternative Fund Cl F returned 3.23% in the third quarter of 2023. This strong performance in a difficult quarter for both stocks and bonds underscores the diversification benefit of the strategy. The return was driven by the merger arbitrage strategy, where we had a number of positive developments:

  • The Federal Trade Commission (FTC) lost the court case in the suit against Activision Blizzard Inc./ Microsoft Corp deal. Meanwhile, the UK Competition and Markets Authority retracted its initial opposition
  • After bringing a lawsuit, the FTC settled with Horizon Therapeutics PLC and Amgen Inc.
  • Similarly, the FTC settled with Black Knight Inc. and Intercontinental Exchange Inc. after bringing a lawsuit
  • The FTC chose not to challenge the NuVasive Inc./Globus Medical Inc. merger
  • U.S. Department of Justice chose not to oppose the ForgeRock Inc./Thoma Bravo LLC merger
  • The FTC abstained from reviewing the PDC Energy, Inc./Chevron Corporation deal

We’ve been highlighting for some time the weak merger challenges that the FTC/Department of Justice in the U.S. have been bringing and their poor track record in court. We’re optimistic that this quarter marks a change in the FTC’s approach to reviewing Merger and acquisition (M&A) deals. We also expect that the landmark lawsuit launched by the FTC against, Inc. in late September to deflect a lot of FTC resources away from spurious merger challenges.

M&A activity continues to be normal and we’d remind investors that historically there has been a positive relationship between interest rates and M&A activity, for details, please refer to our recent article “Mergers and Acquisitions in a Higher Rate Environment: Myths and Realities”. At the end of the quarter, Cisco Systems, Inc. announced their largest-ever acquisition (by a factor of 4x) with theUS$25 billion purchase of Splunk Inc.

The Special Purpose Acquisition Company (SPAC) market remains very quiet, with few IPOs in the quarter. While there are some green shoots in the US regular IPO market with three large and highly oversubscribed deals in September (Arm Holdings plc, Maplebear Inc./Instacart, and Klaviyo Inc.), it hasn’t resulted in any meaningful SPAC activity.


Related Content

Equity Commentary: As at June 30, 2024

Equity Commentary: As at June 30, 2024

The market has produced strong year-to-date returns. There appears to be much comfort in the structural themes driving today’s markets because there is seemingly duration behind them. A sampling of...

This material has been published by Picton Mahoney Asset Management (“PMAM”) on October 12, 2023

It is provided as a general source of information, is subject to change without notification and should not be construed as investment advice. This material should not be relied upon for any investment decision and is not a recommendation, solicitation or offering of any security in any jurisdiction. The information contained in this material has been obtained from sources believed reliable, however, the accuracy and/or completeness of the information is not guaranteed by PMAM, nor does PMAM assume any responsibility or liability whatsoever. All investments involve risk and may lose value. This information is not intended to provide financial, investment, tax, legal or accounting advice specific to any person, and should not be relied upon in that regard. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional.

This material may contain “forward-looking information” that is not purely historical in nature. These forward-looking statements are based upon the reasonable beliefs of PMAM as of the date they are made. PMAM assumes no duty, and does not undertake, to update any forward-looking statement. Forward-looking statements are not guarantees of future performance, are subject to numerous assumptions and involve inherent risks and uncertainties about general economic factors which change over time. There is no guarantee that any forward-looking statements will come to pass. We caution you not to place undue reliance on these statements, as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement made.

Commissions, trailing commissions, management fees, performance fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Alternative mutual funds can only be purchased through a registered dealer and are available only in those jurisdictions where they may be lawfully offered for sale.

There is no guarantee that a hedging strategy will be effective or achieve its intended effect. The use of derivatives or short selling carries several risks which may restrict a strategy in realizing its profits, limiting its losses, or, which cause a strategy to realize or magnify losses. There may additional costs and expenses associated with the use of derivatives and short selling in a hedging strategy.

This material is confidential and is intended for use by accredited investors or permitted clients in Canada only. Any review, re-transmission, dissemination or other use of this information by persons or entities other than the intended recipient is prohibited.

© 2024 Picton Mahoney Asset Management. All rights reserved.