Black Knight-ICE Merger Hopes Fueled by Unit Sale Ahead of FTC Fight
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2023-07-18 03:25
Shares of Black Knight Inc. drew closer to Intercontinental Exchange Inc.’s takeover offer as Wall Street bolstered bets

Shares of Black Knight Inc. drew closer to Intercontinental Exchange Inc.’s takeover offer as Wall Street bolstered bets the deal will close after the mortgage software provider sold additional assets in a bid to address antitrust concerns.

The software company’s stock rallied 15% to as high as $70.74 on Monday, putting the gap with ICE’s $75-a-share offer at less than $5, compared to a $13.74 difference at Friday’s close. While US regulators challenged the $11.7 billion tie-up in March, the market — and Wall Street analysts — are growing increasingly positive about the merger’s ultimate outcome after the $700 million sale of Black Knight’s Optimal Blue business came ahead of a closely-tracked trial.

“The divestiture should nearly solidify the merger’s approval in court,” wrote analysts led by Ryan Tomasello at Keefe, Bruyette & Woods, Inc. in a research note. Although, they added, “it is still uncertain if the FTC will settle.”

Read more: Regulators Sue to Stop ICE-Black Knight Deal. Traders Don’t Care

Optimal Blue was sold to Constellation Software Inc., the same company Black Knight had sold its Empower loan origination software business to in March. That divestment resulted in ICE’s offer for the firm falling to $75 a share from $85.

The latest sale should address the regulator’s major concerns around the merger, William Blair analysts led by Stephen Sheldon said.

The only objection the FTC could raise is that Constellation Software is not a strong enough buyer to compete effectively, the analysts wrote, although that would be a difficult case to make with it now owning both Empower and Optimal Blue.

In recent weeks, merger investors are increasingly emboldened with their bets on deals in the regulatory crosshairs after the FTC suffered a crushing legal defeat on its failure to block Microsoft Corp’s takeover of Activision Blizzard Inc.

The Black Knight-ICE situation has been on the radar for the merger arbitrage community with a potentially favorable risk-reward, attracting wagers from players including David Einhorn’s Greenlight Capital.

Read more: Einhorn’s Greenlight Defies Skeptics in Black Knight Deal Bet

The trial is scheduled to start on Aug. 14, it had previously been scheduled to commence next Monday.

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