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Thursday, October 22, 2026

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The empire building at the Honeywell spinoff Solstice $SOLS came to an abrupt stop even before it started. In a highly unusual move, Solstice and Element Solutions $ESI decided to call off their merger. What makes this move particularly unusual is that neither party will have to pay a termination fee. In the words of Solstice Chairman Rajeev Gautam: "Following conversations with our shareholders and discussions between the parties, both Boards unanimously believe that it is in the best interests of our respective shareholders, employees and customers to terminate the merger agreement" The spread on this deal was as high as 9.13% at the end of last month. Solstice was up after hours yesterday on this news and is likely to post gains during the regular trading session today not just because shareholders are relieved this merger is over. Considering this was a cash plus stock deal with a majority of the payout in stock of Solstice, any arbs that want to unwind this trade will now have to buy shares of Solstice to close out the short leg of their merger arbitrage trade. This is one of the reasons I avoid "all stock" or "cash plus stock deals". You could end up getting hit on both sides of the trade when the stock of the target drops and the stock of the acquiring company spikes on deal termination. In this case, the premium paid for $ESI was about 15% and instead of the stock going up when the deal was announced, it actually fell due to the big drop in Solstice's stock. So we might not see a large drop in Element Solutions and it is possible it might even go up.

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