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SPRD Merger Arbitrage


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Posted on blog but i thought might be of interest here as well, the links work on blog posting:



Short and quick writeup on a definitive merger, SPRD is semi-conductor company in Shanghai that is being acquired by a Tsinghua Holdings for $31.00 cash per ADR. The current deal offers the following terms:


    Completely and Privately funded by Tsinghua Holdings, therefore no financing condition.

    75MM termination fee (4% of the 1.78B offer)

    MAC clause

    Shareholder Approval required

    PRC government approvals required


The economics of the deal based on a $30.30 last price are as follows:


    2.3% gross yield, 6.59% annualized based on 90 day closing *

    Market implied 94% probabiltiy


* As the shareholders voted in favor of the deal as of September 9th, the final hurdle to closing is PRC approval, which could happen much earlier then 90 days. At 30 days, the annualized return shoots up to 28%! One potential reason for a quick closing is shareholder resentment of a low ball offer, with a company growing aggressively some shareholders were disappointed by the purchase price.


At this point the valuation is probably mute as shareholders, controlled by the CEO and Board, have already voted in favor. As of now it is just PRC approval, here is the relevant information from the proxy:


        “Required Approvals” means certain overseas investment approvals, including the approvals of or filings with, as applicable, (i) the National Development and Reform Commission of the PRC or its competent local counterparts and Ministry of Commerce of the PRC or its competent local counterparts with respect to the consummation of the Merger, (ii) the Ministry of Education and/or the Ministry of Finance of the PRC with respect to the consummation of the Merger (if applicable) and (iii) the State Administration of Foreign Exchange of the PRC  or its competent local counterparts in connection with the consummation of the Merger, including approvals for conversion of RMB funds  into U.S. dollar funds and transfer of U.S. dollar funds to Merger Sub or the holders of Shares or ADSs or other interests pursuant to or in connection with the Merger Agreement and the guarantee from Tsinghua Holdings in which Tsinghua Holdings committed to guarantee the funding of Parent in order to enable Parent to fulfill its obligations under the Merger Agreement (to the extent that funding in U.S. dollars is required thereunder), and, if necessary, clearance under the PRC Anti-Monopoly Law approving the Merger.


The rest of the proxy is here. Also since PRC is the biggest risk, it should be noted that Tsinghau is also a state owned enterprise! I find the current spread somewhat surprising despite being a Chinese takeover, because it is hard to see the risk, comments definitely appreciated!

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  • 6 months later...

SPRD deal closed.


A similar transaction is taking place in RDA - being bot by the same acquirer. It traded 17.75 and has an 18.50 cash offer. Only PRC approval is needed however there has been some delay. Similar to SPRD it seems timing is uncertain but it is high probability to close IMHO.

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  • 1 month later...

The RDA deal suddenly got very hairy after a dealreporter article citing 'sources' saying NDRC approval might not be given. I have some updated thoughts but I think at current prices it looks like a very attractive risk/reward situation:





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