Key takeaways
- A signed deal is usually disclosed in an 8-K under Item 1.01, a material definitive agreement.
- Most large deals need antitrust clearance under the HSR Act and often a shareholder vote.
- A cash tender offer must stay open for at least 20 business days.
- Completion is reported in another 8-K, under Item 2.01.
A headline says a company has agreed to buy another. That is the start of a process, not the end: most deals take months to close, and some never do. Here are the steps in between.
1. The announcement
Once both boards approve and the merger agreement is signed, the companies announce the deal. The signed agreement is disclosed in an 8-K under Item 1.01, "Entry into a Material Definitive Agreement", usually with a joint press release attached. A letter of intent or talks that are still under way are not the same thing: they are not binding.
2. The terms
- Price and premium. What the buyer pays per share, and how far that is above the target's recent share price.
- Cash, stock or both. In a stock deal, the target's shareholders receive the buyer's shares, so the deal's value moves with the buyer's share price.
- Financing. How the buyer will pay — cash on hand, new debt or new shares.
- Expected closing. The window the companies expect the deal to complete in.
3. Approvals
Antitrust. Under the Hart-Scott-Rodino (HSR) Act, deals above a size threshold must be notified to the Federal Trade Commission and the Department of Justice, and cannot close until a waiting period — generally 30 days — ends or is cut short. The agencies can ask for more information, which extends the review. Deals may also need approval from regulators abroad or in specific industries.
Shareholders. In a standard merger, the target's shareholders vote on the deal after receiving a proxy statement that explains it, including the background of the negotiations and the advisers' fairness opinions.
4. Tender offers: the faster route
Instead of a vote, a buyer can offer to buy shares directly from the target's shareholders. A tender offer must stay open for at least 20 business days, and the buyer files its offer with the SEC on Schedule TO. Cash tender offers often close faster than mergers that need a vote.
5. Break-up and termination fees
The merger agreement sets out what happens if the deal falls apart. A target that accepts a better offer usually owes the original buyer a termination fee; some agreements also make the buyer pay if, for example, antitrust approval is refused.
6. Closing
When all conditions are met, the deal closes and is reported in another 8-K, under Item 2.01, "Completion of Acquisition or Disposition of Assets". If the target was listed, its shares stop trading.
The deal spread
Until closing, the target's shares usually trade a little below the offer price. That gap reflects the time until the money arrives and the risk that the deal fails. A widening gap can be a sign the market doubts the deal will close.
Frequently asked questions
How long does a deal take to close?
It varies from weeks to more than a year, depending mainly on regulatory reviews and whether shareholders must vote. The merger agreement usually gives an expected closing window.
What is a termination fee?
A payment one side owes the other if the deal is called off for specific reasons, such as the target accepting a better offer. It is set out in the merger agreement.
What is the HSR waiting period?
Under the Hart-Scott-Rodino Act, deals above a size threshold must be notified to US antitrust agencies, and cannot close until a waiting period (generally 30 days) ends or is cut short.
This guide explains how filings and markets work in general. It is not investment advice.
