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 Oracle (ORCL) and NetSuite (N), the timeline will be driven primarily by the antitrust waiting period.
Tender offers generally take 45 days. The antitrust waiting period is 30 days, unless the government asks for more information about the companies and their markets (a “second request”). Once a second request is issued, the timeline is essentially frozen until the companies and the regulators come to an agreement.
The antitrust risk
The companies will have to file a pre-merger notification in accordance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976. To assess antitrust risk, analysts will go to the 10-K filings to see if the companies name each other as competitors. NetSuite’s 10-K mentions Oracle by name as a competitor. NetSuite describes the competitive environment as follows:
We compete with a broad array of financials/ERP, CRM, ecommerce, PSA and HCM companies. Our markets are highly competitive, fragmented and subject to rapid changes in technology. Many of our potential customers evaluate a wide range of alternatives during their purchase process. Although we believe that none of our larger competitors currently offer a cloud-based comprehensive business management suite, we face significant competition within each of our markets from companies with broad product suites and greater name recognition and resources than we have, as well as smaller companies focused on specialized solutions. In addition, some of our larger competitors have announced plans to launch new products that could compete more closely with our cloud-based application suite. Internationally, we face competition from local companies as well as larger competitors, each of which has products tailored for those local markets. To a lesser extent, we compete with internally developed and maintained solutions. Our current principal competitors include Epicor Software Corporation, Intuit Inc., Microsoft Corporation, Oracle Corporation, SAP AG, The Sage Group plc, salesforce.com, inc. and Workday, Inc.
Note the language that the market is “highly competitive, fragmented and subject to rapid changes in technology.” This is good news from a regulatory standpoint. All of the competitors mentioned are huge names, which means Oracle would have a difficult time raising prices.
Best efforts language
Oracle and NetSuite agree to use reasonable best efforts to get the transaction approved by antitrust authorities. But Oracle isn’t required to make any divestitures or behavioral modifications. It’s under no obligation to litigate against the government if antitrust authorities bring an antitrust lawsuit, blocking the deal.
Merger arbitrage resources
Other important merger spreads include the deals between Cigna (CI) and Anthem (ANTM) and between 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 interested in trading in the technology sector can look at the iShares Global Technology ETF (IXN).