Takeovers boom amid pressure to cut deals

THE value of takeovers announced in 2014 hit the $1-trillion (about R10.50-trillion) mark this week, reaching this level at the fastest pace in seven years.

The threshold was crossed 54 days earlier than in 2013 after more than $300-billion in purchases were announced by companies such as Valeant Pharmaceuticals International and Alibaba Group Holding in April, data compiled by Bloomberg show.

This total excludes another $175-billion in proposals by Pfizer, Mylan and others that have been rebuffed or are still awaiting final agreements.

CEOs, with more than $4-trillion in cash on company balance sheets globally, had gone from being wary of making big deals to facing pressure to strike them or be beaten to opportunities by major rivals, said Michael Shaoul of Marketfield Asset Management.

“Literally, this past week we maybe just entered a mergers and acquisitions boom,” said Shaoul, who oversees more than $20-billion as CEO of Marketfield in New York.

“Management teams are starting to build this mentality that they’re going to be a buyer or be bought. It puts pressure on everybody to think about who they could be buying.”

If deal-making continues at April’s rate for the rest of the year, 2014 will result in almost $4-trillion in deals announced, making it the second-most active year for mergers and acquisitions after 2007, data compiled by Bloomberg show.

There are more to come this month. Merck & Co is close to picking the winner of an auction of its consumer-products business, and Alstom SA — the French maker of power plants and trains that has received offers for its energy business from both General Electric and Siemens — said it would make an announcement by tomorrow.

That the $1-trillion figure was hit in April, compared with in June last year, is owing largely to the pharmaceutical industry, which has accounted for nearly one-third of the deal announcements.

These companies could pressure rivals to strike their own takeovers or risk missing out as the industry recalibrated, said Mark Lubkeman, a senior partner at Boston Consulting Group. — Bloomberg