Why some overlap could trigger an antitrust review



Regulatory approvals determine the time to close the deal

For almost all mergers, the rate of return is driven by the time it requires to close the deal. There are two basic types of deals:

  1. cash tenders – they have a shortened timeframe
  2. mergers – they take longer

A cash tender typically has a shorter—15 day—antitrust notification period. These deals usually are finished in about 45 days. Mergers require a vote. This means the SEC (U.S. Securities and Exchange Commission) has to approve the proxy. The meeting date has to be set long enough after the mailing date—usually 30 days—to allow shareholders to review it.

It’s important to note that the companies are guiding a three to five month timeframe. This is standard. In other words, they don’t anticipate regulatory issues.

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The companies will have to file under Hart-Scott-Rodino, or HSR. Typically, to get a handle on the antitrust, the first step merger arbs will look at the 10-Ks of each company—where they go into depth describing their businesses—and see if the two parties are named as competitors. If they’re named as competitors, it can be a signal that the deal will garner some antitrust scrutiny.

Since Regency Energy Partners (RGP) and Energy Transfer Partners (ETP) operate in the same geographic area and name each other as competitors, there could be some antitrust scrutiny. Once the companies file HSR, the authorities have a month to approve the deal or file a request for additional information—a second request.

SEC approval of the proxy

This one usually takes the longest of the non-state approvals. The two companies will release a joint proxy statement. It goes out to shareholders and explains the voting process at a special meeting held to approve the transaction. Often, the SEC will have comments on the proxy. The SEC can send it back for revision. Both companies seem to have been relatively acquisitive, so they should know the drill. They should give the SEC what it needs the first time.

Another important deal is Time Warner Cable (TWC) and Comcast (CMCSA). Investors should also look at the IQ Merger Arbitrage ETF (MNA).


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