US merger wave surges ahead of pres­i­den­tial elec­tion

Kuwait Times - - BUSINESS -

US com­pa­nies sig­nif­i­cantly ac­cel­er­ated merger and ac­qui­si­tion ac­tiv­ity in Oc­to­ber ahead of the fi­nale of a hard-fought pres­i­den­tial elec­tion cam­paign that has fi­nan­cial mar­kets on edge.

In the lat­est ex­am­ples of mega deal­mak­ing, US tele­com group Cen­tu­ryLink on Mon­day an­nounced it was ac­quir­ing Level 3 Com­mu­ni­ca­tions for $34 bil­lion in­clud­ing debt, while Gen­eral Elec­tric un­veiled plans to merge its oil­field unit into Baker Hughes, with an im­plied cur­rent mar­ket value of the merged com­pany of $45-50 bil­lion. The two deals, plus a slew of takeovers un­veiled ear­lier in the month, came as the close and con­tentious US pres­i­den­tial cam­paign be­tween Repub­li­can Don­ald Trump and Demo­crat Hil­lary Clin­ton en­tered the home­stretch. The out­come could have ma­jor im­pli­ca­tions for key US eco­nomic poli­cies, in­clud­ing in­ter­na­tional trade and taxes.

Mar­kets are also gear­ing up for a likely move by the Fed­eral Re­serve to in­crease in­ter­est rates in De­cem­ber, which would raise the cost of debt. In­vest­ment bankers high­lighted the prospect of higher in­ter­est rates down the road as they prod­ded com­pa­nies to pull the trig­ger on deals.

“Now the pitch is ‘Fund your deal with debt... Rates will never be lower!,” said a note from Con­vergex chief mar­ket strate­gist Ni­cholas Co­las.

Co­las, in an in­ter­view, said the trans­ac­tions are a sign of un­der­ly­ing con­fi­dence in the US econ­omy. “It says that CEOs and boards are fairly com­fort­able with where their busi­nesses are cur­rently,” he said.

“They wish growth were bet­ter, but they don’t see a big drop in the neart­erm hori­zon. If they did, they ob­vi­ously wouldn’t be mak­ing big bet-the-farm ac­qui­si­tions.”

“No mat­ter what the change in pol­icy may be in the White House or Congress, no mat­ter what the (in­ter­est) rates are, over­all the econ­omy is still go­ing to be in a good place go­ing for­ward,” said JJ Ki­na­han, chief mar­ket strate­gist at TD Amer­i­trade. “Your busi­ness is still go­ing to be bet­ter off.”

Deal­mak­ing picked up con­sid­er­ably in Oc­to­ber, data show. While the first three quar­ters of 2016 saw rel­a­tively few large merger and ac­qui­si­tion trans­ac­tions, Oc­to­ber was the sec­ond big­gest month ever for US deals, ac­cord­ing to Dealogic. There were 602 trans­ac­tions worth $329 bil­lion last month, just $3 bil­lion short of the record in July 2015. The most con­tro­ver­sial is AT&T’s plan to buy Time Warner, par­ent of CNN, HBO and Warner Broth­ers movie stu­dio, for $85.4 bil­lion. The deal has prompted crit­i­cism that the con­cen­tra­tion of en­ter­tain­ment as­sets will harm con­sumers.

Trump, who has harshly crit­i­cized big com­pa­nies in­clud­ing Ap­ple and Ford dur­ing the course of his cam­paign, has lam­basted the trans­ac­tion, while Clin­ton’s cam­paign has pledged to closely scru­ti­nize the deal. Other large ac­qui­si­tions in­clude tobacco gi­ant Bri­tish Amer­i­can Tobacco’s pro­posed $47 bil­lion buy­out of the re­main­ing stake in Reynolds it does not own, and semi­con­duc­tor gi­ant Qual­comm’s pro­posed takeover of Dutch com­pany NXP, also for $47 bil­lion.

The deals, and hun­dreds of smaller trans­ac­tions, stemmed from a va­ri­ety of mo­ti­va­tions, but in gen­eral, merg­ers can be use­ful in open­ing up cost-cut­ting op­por­tu­ni­ties or ac­cess to new mar­kets dur­ing a slow-growth pe­riod, an­a­lysts said. —AFP

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