The deal jumps one more hurdle
On May 13, Hospira (HSP) shareholders approved the deal with Pfizer (PFE). For all the transaction details, read The Hospira–Pfizer deal: A case study in merger arbitrage.
The vote was never really in question, although there are still some items outstanding. According to the company, the merger is still subject to customary closing conditions, and it’s still in the process of getting regulatory approval.
A total 99.4% of the shares voted to approve the transaction. It’s unusual to conduct a shareholder vote while there are still conditions pending on a deal. By voting, the shareholders have taken the possibility of an overbid, however remote, off the table.
The deal gets a second request
On May 14, Pfizer announced that the Federal Trade Commission had issued a request for additional information regarding the proposed acquisition of Hospira. This is what is known as a “second request,” and it effectively stops the clock with regard to the antitrust review.
Pfizer believed it was close to approval, as it pulled and resubmitted its antitrust application last month. In the end, however, it did receive a second request.
The companies were already building in some risk of a second request, and Pfizer actually inserted language into the merger agreement specifying how far it’s willing to go to get this past the regulators. It would divest value worth no more than 10% of Hospira’s revenues.
As a general rule, pharma mergers are politically sensitive deals and the antitrust reviews can get extremely granular. The companies were named competitors in each other’s 10-K filings, so we knew there was an issue. Regardless, the companies are maintaining their guidance for a close in the second half of 2015.
Other merger arbitrage resources
Other important merger spreads include the Baker Hughes (BHI)–Halliburton (HAL) transaction. For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.
Investors interested in trading in the healthcare sector should look at the Health Care Select Sector SPDR Fund (XLV).