Valeant makes yet another acquisition: Salix Pharmaceuticals (Part 9 of 12)
Regulatory approvals determine when the deal will close
For almost all mergers, the rate of return is driven by the time it takes to close the deal. There are two basic types of deals:
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Cash tenders: They have a shortened time frame.
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Mergers: They take longer.
The Salix–Valeant merger is a cash tender, which typically has a shorter, 15-day antitrust notification period. These deals are usually finished in about 45 days. Note that this agreement provides for a marketing period. These generally did not exist until the mid-2000s and were often associated with private equity deals. Because this is a fully debt-financed deal, the bankers wanted some time to place the debt.
It’s important to note that the Salix–Valeant merger is expected to close in the second quarter.
Antitrust
The companies will have to file under the Hart–Scott–Rodino Antitrust Improvements Act, or HSR. Typically, to get a handle on the antitrust, the first-step merger arbitrageurs will look at the 10-Ks of each company—where they go into depth describing their businesses—and see if the two parties are named as competitors.
Salix (SLXP) and Valeant (VRX) are not named competitors. It appears that there is no overlap. Valeant is big in Neurology, Eye Health, and Dermatology. Salix is in the Gastrointestinal area, so the merger review by FTC should get an early termination. Antitrust is not going to break this deal.
Other merger arbitrage resources
Other important merger spreads include the deal between Hospira (HSP) and Pfizer (PFE). 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 Health Care Select Sector SPDR Fund (XLV).
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