- President Joe Biden's tougher regulatory policy on big corporate mergers has fueled a rise in investor bets about some deals that are not completed, threatening to push the brakes on a record-setting dealmaking boom.
Spreads between deal prices and the share prices of acquisition targets expanded this week after the U.S. Federal Trade Commission said on Tuesday that a surge in mergers and acquisitions would delay antitrust reviews, and that companies that did not wait for their outcome completed their deals at their own risk.
On Wednesday, the Information reported that the U.S. Department of Justice was weighing a lawsuit to block UnitedHealth Group's almost $8 billion acquisition for health analytics and technology vendor Change Healthcare. Such a move would follow its lawsuit to block Aon's acquisition of Willis Towers Watson, which resulted in the insurance brokerages abandoning their deal last month.
The fact that spreads have widened is the understatement of the year, said Roy Behren, managing member of Westchester Capital Management, which currently has $5.1 billion in assets under management, 85% of which is invested in merger arbitrage.
White House does not immediately respond to a request for comment.
Cheers to be assured of the proposed $33.6 billion highway deal between federal transportation board and Kansas City Southern, as both companies await approval from the Surface Transportation Board. Shares of Kansas City are currently trading at $262 apiece, well below the agreed cash-and-stock transaction of $269 per share.
Other deals where spreads have increased include Zoom Video Communications' nearly $15 billion all-stock deal for cloud call center operator Five 9 Inc and medical device maker Thermo Fisher's $17.4 billion Buyout of contract researcher PPD Inc.
Adding to the worry of merger investors are the escalating geopolitical tensions between China and the United States. China can block mergers of U.S. companies if they have a significant presence in the country.
The spread on semiconductor designer Xilinx Inc's $35 billion acquisition of Advanced Micro Devices Inc has widened in recent days for that reason, investors said.
The climate of fear surrounding transactions that require China approval is as difficult as I've seen in many, many years, said Behren.
It is not uncommon for M&A spreads to widen during times of uncertainty. They blew up dramatically in March 2020, when Wall Street fretted over the financial damage of the coronavirus outbreak.