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What Are the Conditions of the Apollo-ADT Transaction?

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Basics of the transaction

As we saw in the first part of this series, Apollo (APO) is buying ADT (ADT) in a cash deal worth $42 a share. The equity value is $6.9 billion, or $11.3 billion if you include debt.

The stocks of both companies rallied on the merger announcement. The companies are aiming for a close at the end of June 2016, but the deal could close sooner if it gets antitrust approval quickly.

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Conditions precedent

The following conditions need to be satisfied for the merger to close:

  • ADT vote
  • The SEC’s (Securities and Exchange Commission) approval of the proxy statement
  • Global Payment’s filing of a PNR (premerger notification report) to comply with the Hart-Scott-Rodino Antitrust Improvements Act
  • Canadian antitrust approval
  • any other regulatory approvals

Go-shop provision and breakup fees

ADT has a go-shop provision that lasts until March 26. During this period, ADT will be allowed to solicit other bids. Once the go-shop period ends, the company will no longer be allowed to solicit bids. However, the company will be permitted to talk to a potential buyer if it puts forth a bona fide offer that the board of directors considers could lead to a better offer for shareholders. Given the go-shop period, this outcome would be highly unlikely. If ADT accepts a superior bid, it will owe APO a termination fee of $421 million.

Merger arbitrage resources

Other important merger spreads include the deal between Baker Hughes (BHI) and Halliburton (HAL) and KLA-Tencor (KLAC) and Lam Research (LRCX). 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 tech sector can look at the iShares Global Technology ETF (IXN).

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