A common or generic dictionary definition of the term consummate in finance is the “completion” of a contract. In mergers & acquisitions, the term specifically refers to the “perfect” completion of a thing in every detail. A contract is said to be consummated, when everything to be done in relation to it, has been accomplished. In the case of mergers and acquisitions, this will refer to the completion of the deal as stated in the merger agreement. This agreement is usually written once due diligence is complete and will become the definitive agreement. Depending on the type of transaction, this document may be known as the “merger agreement” or the “share purchase agreement”.
Despite the “finality” of the term, even after a merger or acquisition has been consummated, it is still possible the deal can be unwound on anticompetitive grounds. This is demonstrated by the FTC’s action regarding the acquisition of Freedom Innovations by Otto Bock HealthCare North America, Inc.
“The Commission is committed to ensuring competitive markets for the benefit of consumers, and there will be times when it has to act after a merger has been consummated,” said FTC Chairman Joseph J Simons. “The goal is always to restore the lost competition.”
However, this course of action by the FTC will be of little consequence to traders who have exited their position and moved on to the next trade. It may however provide clues to the actions of the regulatory authorities when processing similar deals in the future. Although in this respect, as stated in the 2010 Merger Guidelines, when assessing anticompetitive practices in a post merger situation
“Evidence of observed post-merger price increases or other changes adverse to customers is given substantial weight”.
Thus, prior to deal consummation, forecasted anti competitive behavior is still just a forecast and will be interpreted as such by the relevant authorities at that stage in the investigation.
A Consummate Example
The following exert is taken from an 8-K form that was filed with the SEC made by Fitbit (FIT) detailing the Merger Agreement following the announcement of a friendly takeover by Google (GOOG, GOOGL),
The consummation of the Merger is subject to customary closing conditions, including (i) the adoption of the Merger Agreement by the Company’s stockholders; (ii) the expiration or termination of any waiting periods or receipt of any requisite consents under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval under the antitrust laws of the European Union and other jurisdictions agreed by the parties (the “Antitrust Approvals”); (iii) the absence of any law, order or other legal restraint or injunction by any court or governmental entity having jurisdiction that makes the consummation of the Merger illegal or otherwise prohibited (a “Restraint”); (iv) the accuracy of the Company’s, Parent’s and Merger Sub’s respective representations and warranties, including with respect to the absence of a Company Material Adverse Effect (as defined in the Merger Agreement), subject to specified materiality qualifications and (v) the performance of each party’s obligations and covenants under the Merger Agreement in all material respects. The transaction is not subject to a financing condition.
The relevance to the trader is that in order to consummate the merger, payment for the target stockholding must be received. In almost all instances, the word can be replaced with “completion” to ease comprehension.
