A topping bidder that signs by Nov. 28 would trigger a $114 million break fee, against $227 million afterward. Thrive's side owes $473 million if it fails to close. ADT ended at $9.87, 1.3% under the cash price.
The merger agreement behind ADT's $10-a-share sale to Thrive Holdings makes a rival offer cheaper than usual for the next month. The stock market does not appear to be expecting one.
ADT filed the agreement late Thursday. Holders of its common and Class B stock will receive $10.00 a share in cash. The company has said the deal values its equity at about $7.6 billion and its enterprise at about $15.3 billion.
The go-shop terms
ADT may actively solicit competing proposals until 11:59 p.m. New York time on Nov. 28. If a bidder emerges whose proposal the board judges, before that deadline, could lead to a superior deal, ADT can keep negotiating with it until Dec. 8.
If ADT accepts a superior proposal during that window, it owes Thrive's acquisition vehicle a termination fee of $114 million. After the window, the fee is $227 million. Those are about 1.5% and 3.0% of the equity value, by our arithmetic. A superior proposal must be for at least 50% of the company, and Thrive has a right to match.
The protection on the other side
If the buyer fails to complete the deal, it owes ADT $473 million, about 6.2% of equity value. An affiliate of the buyer has given an equity commitment and a limited guarantee covering that fee, and funds managed by Apollo have committed preferred equity and debt. The merger is not conditioned on financing. ADT can seek to force completion if all conditions are met and the Apollo funding is in place.
The deal requires a shareholder vote and U.S. antitrust clearance. The outside date is July 29, 2027, and the companies expect to close in the first quarter of 2027. ADT cannot pay dividends before closing without the buyer's consent.
The filing also disclosed that ADT's compensation committee added Chief Executive James DeVries and two other officers to the company's existing change-in-control severance plan. The company said they were the only eligible officers who had not been added, and that the step was taken "to ensure uniformity of treatment."
What the spread says
ADT closed at $9.87 on Thursday, up 33.2% on the day, and was quoted near $9.88 early Friday. The 1.3% gap to $10 works out to about 3.2% annualized if the deal closes at the end of March, by our arithmetic. That is a return for waiting, with little or nothing added for the chance of a higher bid.
ADT has said it "does not intend to disclose developments with respect to the go-shop process unless and until it determines such disclosure is appropriate or otherwise required."
Live option or formality?
The live-option view: the board may solicit bids and share information for a month, a topping bid would trigger half the normal break fee, and an extra 10 days are available for anyone who engages in time.
The formality view: the stock closed below the offer after the terms were public, the spread prices almost no chance of a bump, and the buyer's match right and financing commitments make $10 the likely final price.
What to watch
ADT's third-quarter results on Nov. 3, the go-shop deadline on Nov. 28 and the Dec. 8 extension, and the proxy statement's account of whether other parties were contacted before signing.