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What Are the Conditions of the Hatteras-Annaly Merger?



Basics of the transaction

As we saw in the first part of this series, Annaly Capital (NLY) is buying Hatteras (HTS) for a combination of cash and stock. The deal is structured as an exchange offer. The companies anticipate closing the merger at the end of 3Q16.

There aren’t any antitrust issues to be concerned about, so the timing will be based on how fast the companies can get the tender offer documents out. Provided that the companies achieve the minimum tender condition of 2/3, then they will execute a second-step merger where people who didn’t tender will have their shares exchanged for the mixed consideration.

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

  • minimum tender condition
  • Annaly’s filing of a premerger notification report to comply with the Hart-Scott-Rodino Antitrust Improvements Act of 1976
  • U.S. Securities and Exchange Commission approval of the tender offer document
  • any other regulatory approvals that are listed in the non-public company disclosure schedule

No-shop provision and breakup fees

Hatteras has a no-shop provision with a fiduciary out. This means that Hatteras isn’t allowed to solicit other buyers during the pendency of the merger. However, if the company receives an unsolicited bid, it’s allowed to fulfill its fiduciary duty to shareholders and discuss the merger with the new party. If the board of directors accepts a higher offer, it will owe Annaly a termination fee of $45 million.

Merger arbitrage resources

Other important merger spreads include the Cigna (CI) and Anthem (ANTM) deal. 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 financial sector should look at the S&P SPDR Financial ETF (XLF).


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