Top Merger Stocks Held By Fund Managers, Mid-Q3 2023

Each quarter, I compile the top 10 stocks held in the funds that specialize in merger stocks and share it with our Seeking Alpha community.

My rules:

• I only count a stock if it is at least 1% of the fund’s portfolio.
• I only include stocks that are still actively trading.
• I only choose funds where the majority of positions are merger-related.

For the third consecutive quarter, Horizon Therapeutics (HZNP) is the top stock. 28 of my 33 funds own it as of June 30. Amgen (AMGN) is in the process of acquiring Horizon for $116.50 in cash.

Despite the fact that the Federal Trade Commission has filed suit to block the $28B purchase, the arb community continues to be bullish on the deal. The trial is set for September 11 but just this week there has been speculation about a potential settlement with the FTC. According to Amgen, they are working on integration plans with Horizon and expect the deal to close by the end of the year.

Meanwhile, for the 5th straight quarter, Activision Blizzard (ATVI) is in the top two. It is in 21 of the 33 funds. Microsoft (MSFT) is trying to buy Activision for $68.7 billion which is $95 per share in cash. This deal had gone through all sorts of issues. Still, the CMA has yet to sign off. Much like Horizon, Arbs are uber confident that this merger will finally close. This week, Microsoft and Activision revised the agreement, with Microsoft agreeing to not acquire the cloud streaming rights to all current and future Activision games released in the next 15 years. These rights will instead be divested to the French group Ubisoft Entertainment (OTCPK: UBSFY).

The U.K.’s antitrust regulator has opened a Phase 1 probe into the newly restructured deal and has set an October 18 deadline.

Top 10 Merger Arb Stocks Held By Funds

1) Horizon Therapeutics	Held by 28 funds	34% IRR
2) Activision Blizzard	Held by 21 funds	23% IRR
3) Seagen (SGEN)	Held by 21 funds	38% IRR
4) VMware (VMW)	Held by 15 funds	61% IRR
5) National Instruments Corporation (NATI)	Held by 15 funds	6% IRR
6) Syneos Health (SYNH)	Held by 13 funds	4% IRR
7) Focus Financial Partners (FOCS)	Held by 14 funds	14% IRR
8) Albertsons Companies (ACI)	Held by 12 funds	53% IRR
9) CIRCOR International (CIR)	Held by 8 funds	3% IRR
10) NeoGames (NGMS)	Held by 8 funds	12% IRR

When a fund makes an M&A stock its top holding, it signals a strong conviction that the deal will ultimately close. Nine funds had Horizon as its top pick as of the end of 2Q.

Top Positions Among The 33 Funds

Horizon Therapeutics	Top Position in 9 Funds
Activision Blizzard	Top Position in 4 Funds
VMware	Top Position in 2 Funds

Some arb funds oversize the positions that they have great conviction in. As of June 30, there were four positions of 15% or more in a single stock.

Oversized Holdings

Horizon Therapeutics	63% of a Fund
Activision Blizzard	29% of a fund
National Instruments Corporation	15% of a Fund
PNM Resources	15% of a Fund

Conclusion

These days there are deals with large spreads with regulatory decisions hanging in the balance. And a host of others with spreads barely higher than the risk-free return of money. But there are always opportunities in M&A and the above data is a good place to start research.