RDA Merger Arbitrage

RDA Microelectronics is a merger arbitrage opportunity with a very attractive spread. It was purchased in Nov of 2013 for $18.50 per ADR ($17.70 Last) : http://ir.rdamicro.com/releasedetail.cfm?ReleaseID=806030

The acquirer is Tsinghua Unigroup, which recently acquired SpreadTrum Communications, another profitable deal I discussed here.

The transaction is subject to approval by the shareholders of RDA, and antitrust and other regulatory approvals, and is not subject to any financing condition. The transaction is expected to close in the first half of 2014.

In December of 2013, RDA received Shareholder Approval: http://ir.rdamicro.com/releasedetail.cfm?ReleaseID=816051 The final hurdle is approval from Chinese authorities. Similar to the SPRD deal, Tsinghua is a Government owned entity. Additionally, China has recently changed their approval process: http://www.reuters.com/article/2014/04/10/china-investmentgrade-idUSL3N0N25F420140410?feedType=RSS&feedName=mergersNews

Since this deal is valued at $910MM, the company should be pursuing ‘registration’ as opposed to regulatory approval. This would make the process far simpler. The rules go into effect on May 8th so the company is likely waiting for this deadline to go ahead with registration.

In the meantime, the spread has widened out considerably. It currently offers a 4.2% GROSS spread and 14.7% annualized yield based on 90 day (3 months) closing. With a $15 break price, the market implied probability is only 80% which seems unusually low.

There has been some chatter in the media regarding some shareholders and employees being somewhat disappointed in the deal: http://www.eetimes.com/author.asp?doc_id=1321558&section_id=36

While employees may be upset due to cultural differences, it should not have an effect on approval IMHO as once registration is complete, so should the merger.


Merger Agreement: http://files.shareholder.com/downloads/ABEA-4NB0X3/3059261787x0xS1104659-13-83199/1493637/filing.pdf

Amendment:  http://files.shareholder.com/downloads/ABEA-4NB0X3/3059261787x0xS1104659-13-91363/1493637/filing.pdf

Termination Fee: 450 RMB or about $72MM USD

Proxy:  http://files.shareholder.com/downloads/ABEA-4NB0X3/3059261787x0xS1047469-13-10817/1493637/filing.pdf

RDA Merger Arbitrage

2 thoughts on “RDA Merger Arbitrage

  1. I also like the risk reward in this merger arb play. The road pass granted to PDST will be expiring soon so Tsinghua Unigroup should be providing an update soon. Good Luck…

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