Basics of the transaction
As discussed previously in this series, Salesforce.com (CRM) is buying e-commerce cloud computing firm Demandware (DWRE) in a $2.8 billion transaction. The merger is structured as a tender offer and has a 51% minimum tender requirement. Once the company declares the tender offer successful, it will buy out the remaining shareholders at the same price. The companies are guiding for a close in the second quarter. Historically, cash tender offers have a quick timeline, usually around 45 days.
Conditions to the merger
- 51% minimum tender condition
- Salesforce’s filing of a pre-merger notification in accordance with the Hart-Scott-Rodino Act
- any other customary conditions
Note that there is no need for a shareholder vote, which cuts a month and a half from the typical merger timeline. Nor is there a need to get a proxy statement through the SEC. Later in the series, we’ll discuss why companies choose to structure mergers as a cash tender offer versus a merger.
Demandware has a non-solicitation agreement with a fiduciary out. This means that during the pendency of the merger, Demandware is not permitted to talk with or share information with other potential buyers. However, if Demandware gets an unsolicited approach that the board of directors believes can lead to a superior offer, the board is permitted to enter into talks in accordance with its fiduciary duties. If Demandware accepts a higher bid, it will owe Salesforce a termination fee of $107 million.
Merger arbitrage resources
Other important merger spreads include the deal between Cigna (CI) and Anthem (ANTM) 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).