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Apollo Buys The Fresh Market in a $1.3 Billion Cash Tender Offer

Apollo Buys The Fresh Market in a Go-Private Transaction

Merger arbitrage

In merger arbitrage, an investor generally buys the stock of the company being acquired, short sells the relevant ratio of the acquirer’s stock if applicable, and waits for the deal to close. When the merger is complete, the investor exchanges the stock of the company being acquired for the amount agreed on in the deal.

Big deal in the consumer sector

On March 15, 2016, Apollo (APO) and The Fresh Market (TFM) announced that Apollo will buy The Fresh Market in a $1.3 billion deal. The deal will be a cash transaction set at $28.50 per share.

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The companies expect it to close in 2H16. The deal is structured as a cash tender offer. Typically, a cash tender offer closes much quicker than deals that require a vote. There isn’t a need to get a proxy statement through the U.S. Securities and Exchange Commission. Also, there isn’t a waiting period after the mailing. Basically, the companies need to get approval under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, commence a tender offer period, and then close the deal if the minimum threshold is met.

The spread is trading at $0.19 gross or about 0.67%. If you annualize the spread out to a two or 2.5-month timeline, the spread is trading at 3.2%. This is a relatively narrow spread. The Fresh Market is allowed a 21-day “go-shop” period to solicit other bids.

Other merger arbitrage resources

Other important merger spreads include the Cigna (CI)-Anthem (ANTM) deal. It’s slated to close in 2H16. The Apollo-ADT (ADT) merger is another important deal. 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 retail sector should look at the S&P SPDR Retail ETF (XRT).

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