The expected completion date is the date of deal completion in mergers and acquisitions as anticipated by the acquirer at the time of the deal announcement. The time period for completion generally falls within a calendar quarter period and occasionally half-yearly. For example, the Demira (DERM) expected completion date in the 8-K form which was filed with the SEC is given as
The transaction is not subject to any financing condition and is expected to close by the end of the first quarter of 2020
For stock market operators trading the merger arbitrage spread, this is a vital piece of information. The time frame given refers to the calendar quarter and therefore covers a range of possible dates. For the purposes return calculations, especially annualized return, the specific date used is often the final date in this period. This date falls before the “drop-dead date” also known as the “outside date”. The risk of a deal not closing within the expected timeframe is called deal extension risk. Merger Arbitrage Limited has produced a separate guide to analyse this risk entitled Hidden Risk in Merger Arbitrage – Deal Extension.
Expected Completion Date in Use
Acquirers often given a wide range of expected completion time so as to give themselves room to maneuver should circumstances change. This may be because of an unexpected regulatory investigation or a negative shareholder reaction. Under the HSR Pre-Merger Notification Program, an unexpected second request for additional information by the DOJ can delay the consummation of the deal by several months. By announcing a wider deal closing window, the acquirer (and target) have the ability to deal with these issues whilst still maintaining closure within the timeframe stated. Failure to achieve closure within the stated schedule may reflect badly on management’s understanding of the processes involved in mergers and acquisitions arena and its ability to get the job done.
For example, when Anheuser-Busch announced the takeover of Craft Brew Alliance (BREW) on November 11, 2019, it took the extremely rare step of announcing the expected completion date as follows
The transaction is subject to customary closing conditions, including approval by a majority of CBA’s shareholders not affiliated with A-B and certain regulatory approvals. The transaction is expected to close in 2020.
The deal is currently subject to a second request for information under the Hart-Scott-Rodino Act and an update on the closing schedule following the Q1 earnings results for BREW leaves this date unchanged. Thus, the lengthy initial 12-month closing window was hinting that a regulatory issue or some other delay was a very real possibility.
The Effect on Merger Arbitrage
The longer the deal takes to consummate the lower the annualized return will be. Therefore, merger arbitrage spreads tend to be wider for deals which have a longer closing period. It is therefore important to pay close attention to how the deal is progressing and whether or not the takeover will close in the expected timeframe.
For a more accurate completion date using a proprietary formula as calculated by Merger Arbitrage Limited, see Forecast Completion Date.
