Aug 5 (Reuters) - U.S. President Joe Biden's tougher
regulatory stance on big corporate mergers has fueled a rise in
investor bets on some deals not being completed, threatening to
push the brakes on a record-setting dealmaking boom.
Spreads between deal prices and the share prices of
acquisition targets widened this week after the U.S. Federal
Trade Commission said on Tuesday that a surge in mergers and
acquisitions (M&A) 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 nearly $8 billion deal to acquire
health care analytics and technology vendor Change Healthcare
. Such a move would follow its lawsuit to block Aon's
$30 billion acquisition of Willis Towers Watson,
which resulted in the insurance brokerages abandoning their deal
"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 of assets
under management, 85% of which is invested in merger arbitrage.
The White House did not immediately respond to a request for
Widened spreads include the proposed $33.6 billion deal
between railroad operators Canadian National Railway
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 deal of $325 per share.
Other deals where spreads have increased include Zoom Video
Communications' nearly $15 billion all-stock deal for
cloud-based call center operator Five9 Inc and medical
device maker Thermo Fisher's $17.4 billion buyout of
contract researcher PPD Inc.
Adding to the anxiety of merger investors are the escalating
geopolitical tensions between China and the United States. China
can thwart mergers of U.S. companies if they have a significant
present in the country.
The spread on semiconductor designer Advanced Micro Devices
Inc's $35 billion acquisition of Xilinx Inc has
widened in recent days for that reason, investors said.
"The climate of fear surrounding transactions that require
Chinese approval is as difficult as I've seen in many, many
years," said Behren.
It is not uncommon for M&A spreads to widen in times of
uncertainty. They blew up dramatically in March 2020, when Wall
Street fretted over the financial fallout of the coronavirus
(Reporting by Anirban Sen in Bengaluru; Editing by Lisa