Could the Life Time Fitness Deal Get Competitive?



Could this deal get broken up?

For merger arbitrage professionals, competitive deals can make your quarter. If you get two companies bidding against each other, a 1% gross spread can easily become 10% by the time everything is said and done.

We saw the Salix Pharmaceuticals (SLXP)–Valeant Pharmaceuticals (VRX) transaction get competitive, and arbitrageurs were rewarded with an 11% return over three weeks. Could the Life Time Fitness merger get broken up by an interloper?

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Life Time Fitness examined strategic alternatives prior to the deal

In August, Life Time Fitness (LTM) announced that it was examining strategic alternatives, including a potential conversion into a real estate investment trust (REIT). At the same time, the company established a shareholders’ rights plan, otherwise known as a poison pill. A poison pill is intended to make it difficult for a buyer to launch a tender offer for a company without a recommendation from the board of directors. As a general rule, pills are a temporary measure.

The critical question is what sort of process—if any—did Life Time Fitness run? We’ll find out once the preliminary proxy comes out. The bigger question is who else could buy the company? As a general rule, private equity firms don’t get into bidding wars with each other. Unfortunately, most of Life Time Fitness’s competitors are also private so we can’t see who would have the resources to buy them. So, while you can’t rule out a topping bid, it doesn’t look like this is that kind of situation.

Other merger arbitrage resources

Other important merger spreads include the deal between Salix Pharmaceuticals (SLXP) and Valeant Pharmaceuticals (VRX) or the merger between Pharmacyclics (PCYC) and AbbVie (ABBV). For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.

Investors who are interested in trading in the consumer discretionary sector should look at the Consumer Discretionary Select Sector SPDR Fund (XLY) or the iShares Global Consumer Discretionary ETF (RXI).


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