uploads///GEVA ALXN spread

Alexion Pharmaceuticals Pays up to Get Synageva BioPharma


Nov. 20 2020, Updated 4:32 p.m. ET

Merger spread analysis

To perform merger arbitrage, the investor will generally buy the stock of the company being acquired and wait for the deal to close. When the deal is completed, the investor will exchange the stock of the company being acquired for the cash consideration.

The Synageva BioPharma (GEVA)–Alexion Pharmaceuticals (ALXN) deal is a cash and stock merger with a shareholder vote.

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This deal is a risk-to-reward transaction

If you look at the annualized spread, you might be forgiven for thinking there’s something wrong with the transaction. An annualized spread in the low teens is usually reserved for mergers with antitrust problems or some other regulatory issue. In this case, however, the regulatory approval should be pro forma.

The reason why the spread is so tight is because Synageva was taken out at a massive premium. Synageva shares were trading below $100 a share before the deal was announced—with a headline price of $230 per share. The transaction’s risk-to-reward ratio explains why the spread is wide. In fact, it looks like Synageva has some good protections in the material adverse effect clause.

The timing of the transaction will depend on how fast the companies can get out the proxy statement. The companies are guiding for a mid-2015 close.

One thing to note is that the merger agreement requires the deal to be reviewed according to the provisions of the Hart-Scott-Rodino Antitrust Improvements Act. Meanwhile, the agreement doesn’t specifically mention any other overseas antitrust approvals being required, like from the European Union.

Aside from antitrust, the merging companies must put out a proxy statement for the deal. Proxy statements can sometimes be time consuming if the U.S. Securities and Exchange Commission sends them back with comments.

Other merger arbitrage resources

Other important merger spreads include the Hospira–Pfizer deal. The Hospira (HSP) and Pfizer (PFE) merger is set to close in 2H15. 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 healthcare sector should look at the Health Care Select Sector SPDR Fund (XLV).


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