Regulatory approvals determine when the deal will close
For almost all mergers, the rate of return is driven by the time it takes to close the deal. In the case of the Freescale–NXP merger, there are several regulatory approvals that are required in order to close the deal.
The companies will have to file under the Hart-Scott-Rodino Antitrust Improvements Act. Typically, to get a handle on the antitrust, the first-step merger arbitrageurs will look at the 10-Ks of each company—where each goes into depth describing their businesses—and see if the two parties are named as competitors.
Freescale Semiconductor (FSL) and NXP Semiconductors (NXPI) are in fact named competitors. To facilitate antitrust approval, NXP has committed to divest its RF (radio frequency) power business up front. The companies expect to have a second request, and there is always the risk of an in-depth regulatory review by the European Union.
Since NXP is a Dutch company, there’s at least a risk of a Committee on Foreign Investment in the United States review to determine if the deal is in the national interest. That said, these reviews typically matter more for government contractors and are more about national security. The companies hope to be able to skip this review.
Finally, the two companies will have to get the proxy statement approved by the U.S. Securities and Exchange Commission. If they get comments back, they need to fix the language and re-file. Once it’s approved, the vote must be scheduled at least 30 days from the mailing date.
Other merger arbitrage resources
Other important merger spreads include the Hospira–Pfizer deal. The Hospira (HSP) and Pfizer (PFE) merger is also set to close in 2H15. For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.
Investors who are interested in trading in the semiconductor sector should look at the VanEck Vectors Semiconductor ETF (SMH).