Time to end bid bravado
ONE doesn’t like to be a fusspot, but the league tables of bids and deals for 2016 compiled by Thomson Reuters among others are all but meaningless.
They may be scrutinised in the parlours of the investment banks, who are only too happy to cite their genius in organising deals and collecting fat fees and bonuses, but much of what is announced is unfinished business.
Among other things, the arrival of Donald Trump in the White House on January 20 – along with a new economic and business team heavily loaded with Wall Street panjandrums – might signal a whole different approach to takeovers.
As far as Britain is concerned, the two largest unsettled transactions – the £21bn Deutsche Boerse ‘merger of equals’ with the London Stock Exchange and 21st Century Fox’s £18bn bid for Sky – are far from being done.
The London Stock Exchange is going through all kinds of contortions to try and convince the European Commission that the transaction is not anti-competitive. It is currently seeking to do a deal with its Paris rival Euronext to sell its French clearing house LCH.Clearnet, thinking that this will sweep away obstacles.
But the serious objections to this transaction run far deeper. From the start it has seemed far more attractive to the LSE chief executive Xavier Rolet, who has been looking for a neat and profitable exit, than anyone else. That is with the possible exception of Wimbledon dweller Carsten Kengeter, the present chief executive of the Frankfurt exchange, who has a real shot at cutting down his commuting time.
Aside from all of that, there are more hurdles. The Hesse authorities are deeply worried about the operational HQ of the new exchange moving to the City. And prudential regulators in London and Frankfurt have serious concerns about capital levels in the clearing operations. And who would stand behind the merged exchange in the case of a multi-billion pound failure in the complex futures markets.
Similarly, there is absolutely no certainty that 21st Century Fox’s bid for the 61pc of Sky that it doesn’t already own will be done. Independent directors have signed off on a premium of 40pc, which is by no means as good as it may seem. Sky’s shares were in the doldrums for most of 2016.
The fall in the pound has made the premium 15pc or so cheaper for Fox, a US company whose shares are in dollars. And Sky’s minority shareholders gifted Fox £5bn in cash when the minority interests in Sky Deutschland and shrinking Sky Italia were bought out.
FOX’S reasons for buying Sky are more about its own problems in the US than anything else. Rupert Murdoch’s attempt to go big and buy Time Warner was a failure and it finds its American operations under threat because of streaming operations such as Netflix and Amazon. Sky, to its great credit, saw this coming and has adapted to the streaming market using its own technology and Fox clearly finds this attractive.
The Murdoch family faces considerable regulatory obstacles. The deal will almost certainly have to be referred by the Secretary for Culture, Media & Sport, Karen Bradley, to regulator Ofcom for review in the light of rules on concentration of media ownership.
The case will be made that the buyer, 21st Century Fox, and News Corporation – ultimate owner of the Sun and other media properties – are separate entities. A quick perusal of the boards and cross-shareholdings reveals this is a chimera.
As the Wall Street Journal proudly says each day on its editorial page, the Executive Chairman of News Corp is Rupert Murdoch. He also is none other than the Executive Cochairman of 21st Century Fox.
Moreover, at a time when Britain’s newspapers are engaged in a do-or-die battle for freedom of the press – amid the effort by tycoon Max Mosley to impose draconian penalties on the written media – it is hard not to forget that this assault has its origins in the behaviour of the News of the World, when Sky chairman James Murdoch was its ultimate boss. And claims involving the socalled Fake Sheikh are still to be settled.
Many of the giant US bids also are still open to challenge. German chemical firm Bayer’s £51bn offer for America’s Monsanto is still being scrutinised, and with the shares showing an 18pc discount to the offer price, no-one is betting this is a done deal. In the media sector, AT&T’s mammoth £86bn offer for Time Warner also is caught in a regulatory quagmire.
When investment bankers and highly paid PR consultants seek to pretend every announced deal is already a done deal, or that mergers and acquisitions in 2016 amounted to £2.9trillion or some other bloated figure, just don’t believe them.
Feathers are being pumped up like those of a peacock in full splendour. Bravado should not get the better of reality.
All the best for 2017.