What do I like to own on the long side on days when nothing is working? Merger arb targets, specifically ones where we’re likely to get paid soon. Ideally, deals are completed, wide spreads slam shut, premiums get paid, and the capital gets returned so that we can recycle it into other opportunities. And there are so many opportunities! From litigation financing to energy equities trading far cheaper than where they should be relative to their related commodities, to bank deal targets, there’s a lot to do. So to avoid getting bogged down, check out deals closing in the next few months.
Vista Equity Partners and Elliott Investment Management are buying them for $104 per share in cash. They already have secured approvals from the US, Turkey, and the target’s shareholders. They filed their EU application for a review that will end on Friday, July 22, 2022.
The deal will probably close by Aug. 15, 2022.
Citrix is headquartered in Fort Lauderdale, Florida.
The spread is monstrously large.
If the deal gets done on current terms, it’s a bonanza. If it gets modestly re-cut, it’s probably OK. Meh, but I’ll take “meh” in 2022. Will the contract hold up? One place to look is the material adverse chance clause that carves out both market conditions and financing:
Company Material Adverse Effect means any change, event, effect, occurrence or development that, individually or in the aggregate, has had or would reasonably be expected to have, a material adverse effect on (i) the business, assets, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole, or (II) the ability of the Company and its Subsidiaries to consummate the Merger; provided, however, that, solely with respect to clause (i), none of the following (alone or in combination) shall constitute or be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur:
A) the negotiation, execution, announcement or performance of this Agreement or the pendency or consummation of the Merger or the other transactions contemplated by this Agreement (including loss of or adverse change in the relationship of the Company and its Subsidiaries with their respective employees, investors, contractors, lenders, customers, Distribution Partners, technology and other partners, suppliers, vendors, Governmental Authorities or other Third Parties); provided, however, that this clause (A) shall not apply to any representation or warranty contained in Section 4.04 of this Agreement to the extent that such representation or warranty expressly addresses consequences resulting from the execution of this Agreement or the pendency or consummation of the Merger or the other transactions contemplated by this Agreement;
B) the identity of Parent or any of its Affiliates as the acquiror of the Company, or any communication by Parent or any of its Affiliates regarding plans, proposals or projections with respect to the Company or its Subsidiaries;
C) general business, economic or political conditions, or the capital, credit, banking, debt, financial or currency markets, in the United States or elsewhere in the world, or changes therein, including changes in interest or exchange rates or any suspension of trading in securities on any securities exchange or other market;
D) general conditions in any industry in which the Company and its Subsidiaries operate, or changes therein;
E) any changes in GAAP or other accounting standards (or the official interpretation thereof);
F) any changes in Applicable Law (or official interpretation thereof), including the adoption, implementation, repeal or modification of any law, regulation or policy (or the official interpretation thereof) by any Governmental Authority, or any panel or advisory body empowered or appointed thereby;
G) the taking of any action, or refraining from taking any action, by the Company or any of its Subsidiaries, in each case at the express written direction of Parent or Merger Sub or as expressly required by this Agreement, or the taking of any action, or failure to take any action, by Parent, Merger Sub or any of their Affiliates;
H) any Stockholder Litigation, or any Proceeding for appraisal of the fair value of any shares of Company Common Stock pursuant to the DGCL in connection herewith;
I) any outbreak, continuation or escalation of acts of terrorism, cyberterrorism, hostilities, sabotage or war, hurricanes, volcanoes, tornados, floods, earthquakes, tsunamis, mudslides, weather-related events, epidemics, pandemics (including COVID-19), plagues, public health events, fires or natural or man-made disaster or act of God;
J) the availability or cost of equity, debt or other financing to Parent, Merger Sub or the Surviving Corporation;
K) any failure, in and of itself, by the Company to meet, or changes to, internal or analysts’ estimates, projections, expectations, budgets, guidance or forecasts of revenue, earnings, cash flow or any other financial measures (which include, for the avoidance of doubt, annualized recurring revenue and bookings) (whether made by the Company or any Third Parties), any change, in and of itself, in the Company’s credit ratings, or in the price or trading volume of shares of the Company Common Stock (it being understood that the underlying causes of such failures or changes in this clause (K) may be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur, unless (and to the extent) such underlying cause would otherwise be excepted by this definition); or
L) the matters expressly set forth in Section 4.09(B)(II) of the Company Disclosure Schedule.
provided that in the case of clauses (C), (D), (E), (F) and (I), such effect may be taken into account in determining whether or not there has been a Company Material Adverse Effect to the extent such effect has a disproportionate adverse effect on the Company and its Subsidiaries as compared to other participants in the industry in which the Company and its Subsidiaries operate, in which case only the incremental disproportionate impact or impacts may be taken into account in determining whether or not there has been or would reasonably be expected to be a Company Material Adverse Effect.
The deal isn’t conditioned upon financing. Lenders are launching deal financing in July, but if they have problems syndicating it, the banks will get hung with it. That would be a problem but isn’t my problem.
Both equity and credit markets are under stress. There’s plenty of downside in a break scenario, with the target stock trading beneath the pre-deal recent low of about $80 per share. Based upon how badly comparable stocks have traded since the deal was announced, CTXS could trade to the mid-$60s as a standalone company. That means that the market price implies a probability of somewhere around two out of three that this deal gets done. Substantially more pessimistic than that? Short it. Substantially more optimistic than that (as I am)? Then add it to your basket of definitive merger arb spreads without antitrust risk.
I like distressed investments. But know what I love? Distressed investors. From time to time, they get in trouble and are forced to deleverage or even liquidate, crushing good risks along with bad ones. That appears to be weighing on CTXS this month.
Just buy CTXS.
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