Required approvals and conditions
With most mergers, the rate of return is driven by the time it takes to finalize the transaction. In the case of Amsurg (AMSG) and Envision (EVHC), the gating item will depend on how closely antitrust regulators look at the transaction. If they approve the deal after the initial 30-day review, the gating item will be the U.S. Securities and Exchange Commission’s review of the proxy statement. If they ask for additional information, then the antitrust review will be the gating item.
The companies will have to file a premerger notification in accordance with the Hart-Scott-Rodino Act. To assess antitrust risk, analysts will go to the 10-K filings to see if the companies name each other as competitors. Envision’s 10-K doesn’t mention Amsurg at all. However, Amsurg’s 10-K mentions that it competes with Envision in the physician services segment. It says that “The markets in which we compete are highly fragmented. We consider our primary competitors to be local physician group practices. On a regional and national basis, we compete with companies such as Envision Healthcare Holdings, Inc. (formerly Emcare), Mednax Inc., and Team Health Holdings, Inc.”
On the bright side, Amsurg thinks that the markets in which they compete are highly fragmented. This should give arbitrageurs some comfort. That said, they do compete directly in at least one area. This could cause regulators to issue a second request.
Best efforts language
Microsoft and LinkedIn agree to use reasonable best efforts to get the transaction approved by antitrust authorities including divestitures and behavioral modifications. However, there’s a materiality test. The companies are required to do whatever it takes to get the deal approved. However, they aren’t required to do anything that would have a material adverse effect on the combined company.
Other merger arbitrage resources
Other important merger spreads include the Cigna (CI)-Anthem (ANTM) deal. It’s slated to close in 2H15. 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 healthcare sector should look at the S&P SPDR Healthcare ETF (XLV).