Amgen’s (AMGN) planned $28 billion purchase of Horizon Therapeutics (NASDAQ:HZNP) and Microsoft’s $69 billion acquisition of video game giant Activision (NASDAQ:ATVI) are among the best bets for deals to close this year.
Amgen (AMGN) is set to battle the FTC in court next month as the regulator tries to get a preliminary injunction to stop the Horizon (HZNP) acquisition. Microsoft (MSFT) is waiting for the UK’s antitrust regulator to give its approval so Activision (ATVI) can finally be done.
Amgen, we think, has a much better case,” Roy Behren, Co-President and co-chief investment officer at Westchester Capital, said in an interview with Seeking Alpha on Friday. “The FTC is really grasping at straws here. We think it is much more likely than not that they will lose their attempt at an injunction and Amgen will be able to close the deal.”
There has been some speculation among M&A investors that there could be a settlement prior to the trial, though Behren puts the odds at about 10%.
Amgen (AMGN) and the FTC last month said there are no ongoing talks to try to come to a settlement over the antitrust regulators block on the Horizon deal. Both Amgen and the FTC said that there have been discussions in the past.
Behren sees the Activistion (ATVI) deal spread as a great investment. Activistion is trading at around $91 a share, and its sale to Microsoft is at $95 a share.
“If you can make 4% on this deal, which has a high likelihood of closing, over a short period of time, it’s a great investment,” Behren explained.
Another deal that is likely to cross the finish line is Pfizer’s (PFE) planned $43 billion acquisition of cancer drug maker Seagen (NASDAQ:SGEN). The transaction, which received a second request from the FTC for more information last month, likely has a 90% chance of being completed, according to Behren.
“It’s not a lay up,” Behren said. “The odds are lower than what we are talking about with ATVI, but we think Pfizer is a great buyer. The Seagen product lines fit very well within Pfizer, and we think it’s mispriced in the market.”
Behren said he’s avoiding Kroger’s (KR) planned $25 billion purchase of Albertson’s (ACI), where the companies are waiting for the FTC to decide if they will let the mega grocery deal go through or try to block it. It’s currently trading at about 40% implied that it will go through.
“In the market, I don’t invest in deals that are less than a coin toss,” Behren said.
Another deal that Behren believes will be completed is Broadcom’s (AVGO) planned acquisition of VMware (NYSE:VMW). The transaction is currently trading at a $20 gross spread on a $150 stock. The deal is awaiting Chinese antitrust approval as well as clearance from the FTC.
“This thing could be wrapped up well before the end of the year, and it’s a great annualized rate of return,” Behren explained. “You do have downside, though. You have 20% downside from here.”
“If you’re wrong and it doesn’t close, you have 25% downside,” Behren said.
While deal activity in general has been slower this year, at least partly do to higher interest rates, Behren expects it will pick up into the fall.
“I think deal activity is on the uptrend and I think it will continue through the end of the year,’ Behren said.