What are closing conditions?

Signing a merger agreement doesn't complete the deal. Some things must happen first, and the agreement lists them as closing conditions.

Say Woodgrove agrees to buy Litware for $50.00 a share in cash. Before the deal can close, Litware's holders must approve it, and an antitrust wait must end.

Once the conditions are met or lawfully waived, the parties must close on the agreement's timetable.

In a US public cash deal, the closing conditions usually include:

Shareholder approval

A vote of the target's shareholders. In a tender offer, enough shares tendered to meet the minimum instead.

Regulatory approvals

The HSR waiting period has ended. Any other antitrust or foreign investment approvals the agreement lists are in.

No order blocking it

No law, court order or injunction prevents the merger.

Accurate representations

The statements each side made about itself in the agreement meet its accuracy standard at closing. Many allow inaccuracies short of a material adverse effect. Some must be exactly right.

Promises kept

Each side has performed its obligations under the agreement in all material respects.

No material adverse effect

No material adverse effect has hit the target since signing.

Some conditions are only checked at the closing itself.

To waive a condition is to give it up, so the deal can close without it.

Each condition protects one side or both, and the side it protects decides whether to waive it.

The buyer can waive conditions about the target. The target can waive those about the buyer.

Say Litware's statements about itself fail the accuracy test the agreement sets. That condition protects Woodgrove, so Woodgrove decides whether to waive it and close anyway.

A condition that protects both sides needs both to waive it, where waiving is lawful. No agreement can waive a legally required approval, waiting period or shareholder vote.

The first HSR waiting period is generally 30 days after complete filings, or 15 days for a cash tender offer. Early termination, extensions, weekends and public holidays can move the end.

After a second request, the wait generally runs until 30 days after both sides substantially comply. In a cash tender offer, it's 10 days after the buyer complies.

Other conditions take as long as their process does: a shareholder meeting, a foreign review or a court case. Some must simply stay true through closing.

So the last condition still open can hold up the closing.

The agreement sets an outside date. If the conditions aren't met by then, either side may usually end the agreement.

Many agreements extend the date automatically when only approvals are still pending.

A side whose own breach caused the delay usually can't use the date to end the agreement.

Whether a fee is owed depends on why the deal failed.

Each open condition is a step left before the cash arrives.

Holders are paid after the deal closes, once the last condition is met or waived. Litware holders get their $50.00 a share only after that.

The deal page lists the recorded conditions under What has to happen, each with its status. Members also see the quote behind each one.

A condition is Pending, Done, Failed or Not required.

On the deal page, a done antitrust or CFIUS approval reads Cleared. Other done regulatory approvals and third-party consents read Obtained. The regulatory card says Cleared.

Approvals with stages show them: see HSR and review phases. A date that passed with nothing filed since keeps its stage and says so: see no filing yet says what happened.