Regulatory approvals determine when the deal will close
For almost all mergers, the rate of return is driven by the time it takes to finalize the transaction. In the case of the Berkshire Hathaway–Precision Castparts merger, several regulatory approvals are required to close the deal.
In the merger of Berkshire Hathaway (BRK-B) and Precision Castparts (PCP), both 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 each company’s 10-K to see if the two parties are named as competitors.
In a 10-K, a company provides an in-depth description of its business. In its 10-K, Precision Castparts names Alcoa (AA) and Allegheny Technologies (ATI) as major competitors. In addition, it has competition from major European players like ThyssenKrupp AG and major Japanese companies like Sumitomo Metal. It doesn’t appear that there is any overlap between any Berkshire Hathaway companies and Precision Castparts.
The companies will probably have to file in China as well as the European Union. The merger agreement references the Company Disclosure Schedule, a confidential document that addresses foreign antitrust approvals. Given the eight-month anticipated timeline, the companies are building in at least the possibility of an extended antitrust review.
Best efforts language
If antitrust regulators ask for any sort of remedy, either behavioral or financial, Berkshire Hathaway is required to fight it. The language does not require Berkshire Hathaway to agree to any sort of divestiture or behavioral requirements over $250 million.
Altera will have to get the proxy statement approved by the SEC (US Securities and Exchange Commission). If the SEC makes any comments, the companies will need to fix the language and refile. Once the SEC approves the proxy statement, a vote must be scheduled at least 30 days from the mailing date.
Other merger arbitrage resources
Other relevant merger spreads include the Freescale-NXP transaction. The merger of NXP Semiconductors (NXPI) and Freescale Semiconductor (FSL) should close by the end of the year. For an in-depth look at risk arbitrage investing, please read Merger arbitrage must-knows: A key guide for investors.
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