SJR.B:CC - Top Merger Stocks Held By Fund Managers Mid-Q3 2022
- Form 13F filings show fund managers' top arbitrage stocks.
- Top M&A stocks of the 30 funds I follow.
- Activision Blizzard this quarter's top stock.
It was an interesting few months for merger arb. In early June, spreads blew out as Thoma Bravo cut the price for its deal with Anaplan ( PLAN ). But it turned out to be company specific as Anaplan didn't comply with an interim operating covenant in the merger agreement governing the amount of equity awards Anaplan was permitted to issue following signing without Thoma Bravo's approval. Since then some deals have closed and spreads have calmed down considerably.
Each quarter I compile the top 10 stocks held in the funds that specialize in deal stocks and share it with Seeking Alpha readers.
My rules:
- I only count a stock if it is at least 1% of the fund's portfolio.
- I only include stocks that are still actively trading.
- I only choose funds where the majority of positions are merger-related.
One deal spread that has closed a bit and is a favorite of the funds I follow is Activision Blizzard ( ATVI ). It is in 16 of the 30 funds. Microsoft ( MSFT ) is in the process of acquiring Activision Blizzard for $95 per share, in an all-cash transaction valued at $68.7 billion. If the merger closes, Microsoft would become the world's 3rd largest gaming company. The European Commission and the FTC (2nd request) still need to sign off. Shareholders have already approved. Microsoft has guided to a 2023 close.
15 of the funds held Switch ( SWCH ) at the end of the second quarter. Switch, a leading Data center provider, is being bought by DigitalBridge Group ( DBRG ) for $34.25 per share or about $11 billion. The transaction is expected to close later this year and the transaction is subject to approval by Switch stockholders.
Top 10 Merger Arb Stocks Held By Funds
| 1) Activision Blizzard |
| Held by 16 funds |
| 27% IRR |
| 2) Switch |
| Held by 15 funds |
| 3% IRR |
| 3) Mandiant ( MNDT ) |
| Held by 14 funds |
| 5% IRR |
| 4) Biohaven Pharmaceutical ( BHVN ) |
| Held by 14 funds |
| 5% IRR |
| 5) Zendesk ( ZEN ) |
| Held by 12 funds |
| 5% IRR |
| 6) Alleghany Corporation ( Y ) |
| Held by 10 funds |
| 4% IRR |
| 7) Twitter ( TWTR ) |
| Held by 10 funds |
| 88% IRR |
| 8) Citrix Systems ( CTXS ) |
| Held by 10 funds |
| 8% IRR |
| 9) Tower Semiconductor ( TSEM ) |
| Held by 9 funds |
| 23% IRR |
| 10) Nielsen ( NLSN ) |
| Held by 9 funds |
| 18% IRR |
When a fund makes an M&A stock its top holding, it signals strong conviction that the deal will ultimately close. Nine funds had Cerner as its top pick as of the end of the first quarter.
Top Positions Among The 30 Funds
| Alleghany Corporation |
| Top Position in 3 Funds |
| Activision Blizzard |
| Top Position in 2 Funds |
| Zendesk |
| Top Position in 2 Funds |
Some arb funds oversize the positions that they have great conviction in. As of the end of the 2nd quarter, there were three positions of 15% or more in a single stock.
Oversized Holdings
| Shaw Communications ( SJR ) |
| 20% of a fund |
| Tower Semiconductor |
| 17% of a fund |
| Alleghany Corporation |
| 15% of a fund |
Conclusion
Professional M&A shops tend to have significant resources, staff and relationships with companies and regulators. That is why since the late 90's I have found that tracking where they are putting their money is worthwhile.
For further details see:
Top Merger Stocks Held By Fund Managers, Mid-Q3 2022