National Post (National Edition)
Busted mergers took spotlight during 2016
RECALCITRANT TARGETS. REGULATORS KILL DEALS
It may not have been a banner year for striking deals, but 2016 was a healthy time for breaking them.
This year was the biggest in terms of volume for busted transactions — those withdrawn after being announced — since the depths of the financial crisis eight years ago, as big takeovers by the likes of pharmaceutical giant Pfizer, Oreos maker Mondelez and office supply retailer Staples were consigned to the scrap heap.
Some 1,009 takeovers worth US$797.2 billion had been pulled this year as of Dec. 20, according to Thomson Reuters, a volume not seen since 2007 and 2008. The broken deals accounted for almost a quarter of the US$3.55 trillion in transactions announced over the past 12 months.
Many of the deals that perished were born of the heady ambitions that filled corporate chieftains’ heads. CEOs and their bankers and lawyers pursued big, risky transactions to achieve the kind of growth that they were largely unable to achieve on their own.
Regulators and recalcitrant targets helped quash those merger dreams. Antitrust officials deemed many of these transactions unallowable because they were likely to lead to too much market concentration. Others were denied by target companies unwilling to sell themselves — at least, at the offered prices.
To be sure, plenty of major transactions have been announced in 2016, from AT&T’s US$85-billion blockbuster bid for Time Warner to the German drugmaker Bayer’s US$56-billion offer for Monsanto.
Still, as the year winds down, it’s worth taking a moment to remember some of the most notable deals that didn’t come to pass.
PFIZER AND ALLERGAN
Size of Deal: US$152 Billion A union of the two pharma companies would have been the biggest takeover in 15 years. It would have yielded Pfizer the huge takeover long coveted — and, perhaps more important, the chance to relocate its corporate home abroad to lower its tax bill. But the Obama administration tweaked tax rules aimed at stymying corporate inversions, which an increasing number of U.S. companies had been attempting to reduce their tax bills. Those changes eroded the financial advantages Pfizer hoped to reap, leading the two to eventually part ways.
HONEYWELL AND UNITED TECHNOLOGIES
Size of Deal: US$90 Billion When the two conglomerates began speaking about a potential merger in spring 2015, it looked like a new titan, whose products would have run from thermostats to jet engines, was in the offing. But United Technologies’ desire to strike a deal fell as its stock price declined. Honeywell persisted. Yet United Technologies remained unwilling, and, lacking leverage, Honeywell was forced to withdraw.
ENERGY TRANSFER AND WILLIAMS COS.
Size of Deal: US$32.7 Billion What was meant to be the creation of an energy giant quickly collapsed into recriminations and a bitter fight. Energy Transfer, an operator of pipelines, sought to buy its rival after failing once before. But the slump in oil prices made the deal seem too expensive, leaving Energy Transfer to fight in court to terminate the deal. In June a Delaware judge ruled that Energy Transfer had the right to walk away.
HALLIBURTON AND BAKER HUGHES
Size of Deal: US$35 Billion This energy industry deal was blocked by regulators. Buying Baker Hughes would have made Halliburton more imposing in the world of oilfield services, giving it more heft to battle Schlumberger while cutting costs.
But the Justice Department had other ideas, suing to prevent the merger on antitrust grounds. The drop in oil prices since 2014 had impinged upon the two companies’ ability to sell off businesses to appease government regulators. Eventually, the two companies broke up.
Baker Hughes still had reason to celebrate by yearend, however. The company agreed in October to merge with the oil and gas division of General Electric.
MONDELEZ AND HERSHEY
Size of Deal: US$23 Billion A bittersweet ending awaited Mondelez in its quest to buy the famed chocolate maker. Mondelez, owner of Cadbury and Nabisco, had sought to buy its confectionary competitor, hoping to succeed in a takeover when others like Wm. Wrigley Jr. had failed.
But a number of factors, from Hershey’s demands for a higher price to the legal uncertainty that surrounded Hershey’s biggest shareholder scuppered the bid.
ANBANG INSURANCE AND STARWOOD HOTELS
Size of Deal: US$14 Billion The bidding war for Starwood proved fierce, as Marriott International battled with a group led by Chinese insurer Anbang for control of the Westin and Sheraton hotel chains. By March, Anbang and its partners apparently had prevailed, as Marriott declined to raise its bid in the hopes that it would catch a last-minute break.
Somehow, Marriott did. Anbang — which had already bought luxury hotels like the Waldorf Astoria and the JW Marriott Essex House — mysteriously withdrew its takeover bid, leaving advisers to Starwood questioning whether the Chinese government had intervened. That left Marriott the winner with a US$13.3-billion offer.
STAPLES AND OFFICE DEPOT
Size of Deal: US$6.3 Billion Though Staples and Office Depot stand astride selling paper clips and Post-it notes to businesses, the two retailers have suffered from the rise of Amazon. That led the two to turn to a merger.
But the U.S. FTC U.S. sued to block the proposed union on competitive grounds. In May, a federal judge sided with the regulator.