Merger Arbitrage Opportunity in Jazz Technologies?

Jazz Technologies (JAZ) announced on May 19, 2008 that they are being acquired by Tower Semiconductor (TSEM). The final decision of the deal is expected to be announced dependent on the results of the special meeting of shareholders scheduled for September 17, 2008. When I started to look into this merger yesterday, the spread was at 15%. Today, August 13, the spread fluctuates between 6-9%. However, this still comes out to an annualized gain in the range of 40-72%.

Basics Of The Merger

• If the deal goes through, each share of JAZ will be converted to 1.8 shares of TSEM.
• Fractional shares will be paid in cash
• JAZ options, vested or unvested, will be exercisable for 1.8x Tower ordinary shares.
• All approvals received and the only hurdle left is shareholder approval by Jazz shareholders.
• For more background on the merger and both companies, you can view a presentation by going here.

Termination Details

The termination conditions for this merger allow both parties to walk away fairly easily without much pain. The usual clauses pertaining to delays, failure to recommend the merger, failure to meet legal requirements etc are in there for good measure but the point that caught my attention is that the “Jazz has agreed to pay Tower a termination fee of $1.2 million and reimburse Tower for up to $1 million in expenses incurred in connection with the transaction…”