What’s the Path to Approval for the Baxalta–Shire Transaction?
Baxalta and Shire Finally Ink a Deal
Regulatory approvals
With almost all mergers, the rate of return is driven by the time it takes to finalize the transaction. In the case of the Baxalta–Shire merger, we have several conditions that must be met before the transaction can close.
Tax opinion
There is a reference to the tri-party agreement between Baxter International, Baxalta, and Shire, not to mention the waiver of certain conditions.
SEC approval
Baxalta (BXLT) will have to get the proxy statement for the shareholder vote approved by the Securities and Exchange Commission (or SEC). If the SEC makes any comments, the companies will need to fix the language and refile. Once the SEC approves the proxy statement, a vote must be scheduled at least 30 days from the mailing date.
UK approval
Shire will also require a vote from its shareholders, and the UK prospectus must be approved by the UKLA (UK Listing Authority) regulators.
Antitrust requirement
Shire (SPHG) will need to file for merger approval under the Hart-Scott-Rodino Antitrust Improvements Act. The merger agreement only mentions Hart-Scott-Rodino as an antitrust requirement but refers to other regulatory agencies in the Company Disclosure Schedule. Note that the latter is non-public. The most likely additional approval would be from the European Union.
Professional arbitrageurs will usually go to the respective Form 10-Ks for the companies to get a read on antitrust and to see if the companies name each other as competitors. Neither company mentions the other as a competitor.
Best efforts language
The companies will use reasonable best efforts to get regulatory approval and contest any findings by the antitrust authorities. The companies aren’t required to make any divestitures or behavioral modifications that total $740 million or greater.
Other merger arbitrage resources
Other important merger spreads include the Cigna (CI) and Anthem (ANTM) deal, slated to close in the second half of 2015. 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 could consider the S&P SPDR Healthcare ETF (XLV).
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