Basics of the transaction
The Pharmacyclics–AbbVie merger transaction is a tender offer involving a cash and stock election. This allows the investor to choose the consideration he or she receives subject to limits and proration. Elections can be a good way to gain some excess return by catching people napping.
Terms of the transaction
The following conditions need to be satisfied in order for the deal to close:
- minimum tender condition (50%)
- Hart-Scott-Rodino antitrust filing
- any other government approvals
Pharmacyclics has a nonsolicitation agreement with a fiduciary out. This means that prior to shareholder approval of the transaction, Pharmacyclics could discuss another merger if approached by another suitor.
First, the Pharmacyclic board of directors would have to determine that such discussions could lead to a bona fide offer that would likely result in a higher bid for the company. Salix, however, is not permitted to shop itself around.
In the event another bidder comes in and tops the AbbVie bid, it will owe a breakup fee of $680 million.
AbbVie warrants that it has commitment letters for financing the cash portion of the transaction.
Other merger arbitrage resources
Other important merger spreads include the deal between Hospira (HSP) and Pfizer (PFE). 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 healthcare sector should look at the Health Care Select Sector SPDR Fund (XLV).