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 Amazon.com, 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.

 

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

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