Megadeals steam on despite reversals
IT will take more than the second thoughts of a couple of billionaires to slow down this year’s megadeal boom.
Media mogul Rupert Murdoch withdrew his bid for Time Warner this week as Japanese tycoon Masayoshi Son abandoned his plans to merge TMobile US with Sprint.
Their moves stripped about $100-billion (R1-trillion) from this year’s deal roster at heavy cost to traders who had speculated the transactions would get done. Even so, that barely put a dent in merger volume, still up 61% from a year ago to almost $2 -trillion, according to data compiled by Bloomberg.
With at least seven deals each valued at more than $20-billion in the works, this year’s average acquisition size will be larger than any in a year since 1996, figures show. That’s not including ZF Friedrichshafen’s talks to acquire TRW Automotive Holdings and Repsol’s potential bid for Talisman Energy. Both targets are valued at more than $10-billion.
“I don’t see anything that’s flashing even a yellow light for mergers and acquisitions (M&A),” said Tom Burnett, director of research at Wall Street Access, which specialises in mergers and event-driven analysis. “You had these deals blow up, but they are individual situations and I don’t think it casts a pall over the M&A trend. I don’t think the game is over.”
Accumulated cash and stock price gains are giving companies firepower to make deals.
Combine that with slowing revenue and profit growth at companies from drugs makers to brewers, as well as low borrowing rates, and it’s a recipe for the acquisition spree to keep going.
About $1.8-trillion in mergers and acquisitions have been announced globally this year, and about two-thirds of those more than 12 000 deals have already closed. That puts 2014 on track to be the busiest period since at least 2007.
I don’t see anything that’s flashing even a yellow light for M&A. I don’t think the game is over
Even the deals that unravelled may return.
Dish Network chairman Charlie Ergen said Sprint’s decision to drop its T-Mobile bid opened up more options for his satellite-television carrier as he looked for ways to expand into the wireless business and make use of Dish’s $26-billion portfolio of wireless spectrum.
T-Mobile also had a proposed offer from France’s Iliad, and its share price fell 8.4% on Wednesday, the day Sprint pulled out.
“The market is maybe focusing on the here and now, and not focusing on what Ergen has been doing and what he needs to do in the light of the fact that there could be some deal,” said Sachin Shah, a situations and merger arbitrage strategist at Albert Fried. “This is the runway he’s been waiting for.”
Analysts speculated last week that Time Warner might lure other suitors such as Verizon Communications or pursue a merger with CBS.
Even if Murdoch could not secure a deal, it was probable that Time Warner would be sold to someone else within the next two to three years, Laura Martin, a media analyst at Needham, said last week.
Time Warner CEO Jeff Bewkes would be more willing to sell the company when potential suitors Comcast, AT& T and Verizon — which are busy with other deals — had digested those transactions and could actively bid on Time Warner, a person with knowledge of the matter, who asked not to be identified as discussing private information, said last month.
Pfizer shelved plans in May to buy AstraZeneca for about $117-billion, which would be a record-setting transaction for the drug industry. It still had a chance to clinch a big deal by instead pursuing a takeover of GlaxoSmithKline or Actavis, analysts said this week.
Pfizer is among the major companies that are turning to acquisitions to give revenue a needed boost. Without a deal, Pfizer will show almost no sales growth over the next decade, according to analysts’s estimates compiled by Bloomberg. CEO Ian Read signalled last week he was willing to look at other big takeover opportunities. The megadeals were driven by the companies that “have to do something”, said Burnett of Wall Street Access.
While there probably were not major transactions left to do in the airline and telecommunications industries, “there’s still a lot to do in energy, finance, healthcare and technology. I think we’re going to see a lot more M&A”. — Bloomberg