U.S. com­pa­nies set monthly record for deals

Daily Local News (West Chester, PA) - - MARKET PLACE -

U.S. com­pa­nies are cut­ting merger deals at a record pace even though an­titrust reg­u­la­tors have moved to op­pose sev­eral re­cent high-pro­file com­bi­na­tions.

So far this month, com­pa­nies have agreed to merg­ers and ac­qui­si­tions val­ued at more than $251 bil­lion, fi­nan­cial-in­for­ma­tion provider Dealogic said late Fri­day. That sur­passes the pre­vi­ous record of $240 bil­lion in July 2015.

Last week alone the merger mania racked up about $177 bil­lion, a new mark for a sin­gle week.

The hottest sec­tor has been tech­nol­ogy — ac­count­ing for more than one-fourth of all U.S.-tar­geted deals and 19 per­cent by deal value, ac­cord­ing to Dealogic. Health care ranks sec­ond by deal value.

The big­gest of the Oc­to­ber deals so far is AT&T Inc.’s agree­ment to buy Time Warner Inc. for $85 bil­lion.

Among the most re­cent is Qual­comm Inc.’s an­nounce­ment that it will buy NXP Semi­con­duc­tors NV for $39 bil­lion.

Some ru­mored deals may fall short of full-blown merg­ers or ac­qui­si­tions. On Fri­day, Gen­eral Elec­tric Co. con­firmed it was talk­ing to Baker Hughes Inc., which pro­vides drilling ser­vices to oil com­pa­nies, about po­ten­tial part­ner­ships. “While noth­ing is con­cluded, none of these op­tions in­clude an out­right pur­chase,” GE said in a state­ment.

It is not clear why so many deals are hap­pen­ing now, or how many of the pro­posed mar­riages will be com­pleted. While al­low­ing some big merg­ers, the Obama ad­min­is­tra­tion has cited po­ten­tial harm to con­sumers in op­pos­ing other high-pro­file deals that then col­lapsed.

Among the ca­su­al­ties: a pro­posed Com­cast-Time Warner Cable tie-up, AT&T’s at­tempt to buy T-Mo­bile, and Hal­libur­ton’s bid for Baker Hughes. The Trea­sury Depart­ment sunk Pfizer’s planned $160 bil­lion deal for Bo­tox maker Al­ler­gan by cre­at­ing rules aimed at pre­vent­ing U.S. com­pa­nies from mov­ing cor­po­rate ad­dresses over­seas to re­duce U.S. taxes.

At­tor­ney Gen­eral Loretta Lynch said re­cently that con­sol­i­da­tion brought on by merg­ers has chal­lenged her an­titrust reg­u­la­tors in the Jus­tice Depart­ment “to main­tain mar­kets that serve not just top ex­ec­u­tives and ma­jor­ity share­hold­ers, but ev­ery Amer­i­can.”

If the polls are right and Demo­crat Hil­lary Clin­ton de­feats Repub­li­can Don­ald Trump on Nov. 8, her ad­min­is­tra­tion is ex­pected to gen­er­ally fol­low Pres­i­dent Barack Obama’s course on an­titrust reg­u­la­tion.

Merg­ers can be a quick route to growth for com­pa­nies that strug­gle to boost sales and profit any other way. They can also im­prove the for­tunes of an en­tire in­dus­try. That is what hap­pened to the U.S. air­line in­dus­try af­ter merg­ers elim­i­nated five com­peti­tors in a decade.

Not all deals work out well, how­ever. Ac­quir­ing com­pa­nies of­ten pay a pre­mium for their prey — it’s called good­will in ac­count­ing par­lance — for merger ben­e­fits that never ma­te­ri­al­ize.

The amount of good­will listed on the bal­ance sheets of com­pa­nies in the Stan­dard and Poor’s 500 in­dex has soared to $2.5 tril­lion, a 50 per­cent in­crease over the amount at the end of the last mega-deal boom in 2007, ac­cord­ing to data provider Fac­tSet.

If the deal never jus­ti­fies the pre­mium, com­pa­nies may have to write off that in­tan­gi­ble good­will.

AOL took a $45 bil­lion write-off in 2002, two years af­ter its $106 bil­lion pur­chase of Time Warner. Other com­pa­nies in­clud­ing Sprint, Hewlett-Packard and Mi­crosoft have taken huge deal-re­lated write-offs since the AOL de­ba­cle.

Write-downs of good­will caused ma­jor re­duc­tions in earn­ings of S&P 500 com­pa­nies af­ter the 2007 and 2002 merger surges, ac­cord­ing to data from R.G. As­so­ciates, a re­search firm that spe­cial­izes in ac­count­ing is­sues.

THE AS­SO­CI­ATED PRESS

A minia­ture re­pro­duc­tion of Ar­turo Di Mod­ica’s “Charg­ing Bull” sculp­ture sits on dis­play at a street ven­dor’s ta­ble out­side the New York Stock Ex­change in lower Man­hat­tan.

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