Service Corp International's Purchase of Stewart To Get Deep Antitrust Review

Funeral home and cemetery operator Service Corp. International is expected to face a lengthy Federal Trade Commission review before being allowed to close its proposed $1.4 billion purchase of rival Stewart Enterprises Inc.

Acknowledging the expected length of the FTC’s antitrust review, SCI CEO Tom Ryan predicted during a conference call with analysts when the deal was announced May 29 that it would close in late 2013 or early 2014 and said some divestitures of cemeteries and funeral home locations were expected.

The companies’ merger agreement allows SCI, the largest combined funeral home and cemetery operator in the U.S., to walk away from the deal if the required divestitures exceed $60 million in Ebitda, although company officials predicted the total earnings of properties ordered sold would be below that threshold.

“We wouldn’t anticipate reaching that cap, but anything can happen” during the FTC review, Ryan said.

At least one merger agreement in previous SCI acquisitions identified specific properties that if ordered sold off would allow SCI to walk away from the deal. But Ryan said the Stewart deal does not list specific locations that would be deal breakers if ordered sold by the government.

Ryan said SCI has done internal analyses to predict which properties are likely to be sold but is not making that information public. “We’ve got a bunch of different analysis on this, but it is difficult to predict” what the FTC ultimately will require, he said.

SCI is accustomed to FTC merger investigations and has had to divest properties to complete previous deals. In 2010 the company was required to sell 22 funeral homes and four cemeteries in 19 local markets to gain approval for its acquisition of Keystone North America Inc.

In 2006 the company was ordered to sell funeral homes in more than 29 markets and cemeteries in 12 markets across the United States to gain approval for its acquisition of Alderwoods Group Inc. It was also required to end licensing agreements with third-party funeral homes affiliated with SCI.

SCI is being represented in the antitrust review by Shearman & Sterling LLP partners Jessica Delbaum and Wayne Dale Collins. Jones Walker LLP partners Mark A. Cunningham and David G. Radlauer are providing antitrust counsel to Stewart.

Terms of the deal call for Houston-based Service to pay $13.25 per share in cash for Stewart, a premium of 36% to the target’s May 28 close. Stewart, of Jefferson, La., just outside of New Orleans, runs funeral homes in 24 states. Stewart shares were trading at $13.05 in late afternoon trading Monday, June 3.

Through a string of mergers Service Corp. has built a network of 1,437 funeral homes and 374 cemeteries spread across 43 states, eight Canadian provinces and the District of Columbia. Combining with Stewart would create a $3 billion-sales company with 2,168 locations in an additional five states and Puerto Rico.