6 Of The Most Talked About M&A Deals This Year
Mergers and acquisitions were a hot topic this year, as some of the world’s largest brands joined forces in an effort to snap up market share, diversify products and avoid taxes. Cheap borrowing costs and the addsed weight of sluggish economic growth helped 2015 become a record-breaking year for U.S. firms.
While 2007 still holds the title when adjusted for inflation (with $4.9 trillion worth of M&A deals), 2015 is a close runner up with some $4.7 trillion worth of mergers expected to be signed before the end of the year.
While many firms are likely to be plagued by a slow growing economy in the year to come, debt is unlikely to be cheap, as the U.S. Federal Reserve is expected to raise interest rates. Another setback for the M&A scene in the coming year is increased regulation regarding tax inversion deals. This year, several U.S. firms joined forces with overseas competitors, allowing them to move their headquarters and avoid hefty corporate taxes in the United States. However, new laws prohibit such deals, making it harder for firms to use a merger in order to find tax loopholes.
It remains to be seen whether 2016 will generate as much M&A action as 2015, but here’s a look at some of the biggest deals from the past 12 months.
Anheuser Busch Inbev SA (ADR) (NYSE: BUD) And SABMiller
The beer mega-merger between Anheuser Busch and SABMiller was a hotly debated subject toward the end of this year, as the two largest beer brands agreed to join forces in a deal worth $108 billion.
The agreement would put the new company far above the rest of the world’s brands, as it would allow Anheuser Busch to control nearly 30 percent of the market. The new brand will offer consumers more choice and give Anheuser Busch better access to international markets.
Although both parties have agreed to the merger, the deal still needs regulatory approval, something that will probably take a great deal of time. In the terms of the agreement, Anheuser Busch has agreed to divest several of SABMiller’s brands in an effort to satisfy regulators, but some believe this will not be enough to convince lawmakers that the new company won’t become unfair competition to rival brands.
Heinz And Kraft Foods
This summer, 3G Capital Partners LP and Warren Buffett’s Berkshire Hathaway Inc. helped facilitate a merger between Heinz and Kraft foods to create the fifth largest food company in the world by sales.
The deal was valued at 62.6 billion and gave many investors cause for concern, as Kraft’s sales have been falling recently despite price hikes. Some of the company’s flagship brands like Jell-O have struggled as consumers look for healthy, all natural alternatives. However, the new company, strong>Kraft Heinz Foods Co (NYSE: HNZ), says it expects to save around $1.5 billion per year from the deal and has vowed to use those funds in order to breathe new life into struggling product lines.
Some analysts believe the Kraft acquisition will be the first of many, and see Kraft Heinz acquiring a company like General Mills, Inc. (NYSE: GIS) or Mondelez International Inc (NASDAQ: MDLZ) as well in the coming years.
This year was a big one for healthcare companies, as The Affordable Care Act (“Obamacare”) changed the landscape of the insurance market. Investors speculated for months about possible combinations in the health insurance space as almost every big firm began to talk about M&A deals.
Combined, Anthem and Cigna will provide coverage for 53 million members, and the deal could reduce the insurance industry to just three big names.
However, the wave of consolidation in the insurance industry has brought on a lot of criticism from lawmakers who say the deals will hurt consumers in the end. Presidential hopeful Hillary Clinton has been outspoken about her lack of support for such deals and has urged regulators to take a close look at the deal before approving it. She worries that too much consolidation will cut down on choices for consumers and drive health insurance costs upward. If the deal does gain regulatory approval, it is expected to close during the second half of 2016.
The energy sector was ripe for M&A action this year, as many firms struggled to tread water in a difficult environment. Oil prices took a steep dive as the global supply glut worsened, leaving energy firms to fight to stay afloat longer than their competitors did. Taking advantage of the situation, Royal Dutch Shell agreed to buy BG Group in a deal worth $70 billion, the largest the sector has seen over the past decade.
The deal has already received regulatory approval in Europe and is expected to complete early in 2016. However, many shareholders have become concerned about the terms of the deal as the energy space is expected to continue suffering in the year to come. However, Shell says it is confident that it can protect its share price and dividend payments; the company has already announced plans to cut 2,800 jobs once the new company is formed.
Earlier in 2015, Charter Communications made a $67.1 billion dollar deal to acquire Time Warner Cable and Bright House Networks. The deal is expected to create the second largest cable operator in the United States with a customer base of 24 million.
The deal has been under heavy scrutiny from the Federal Communications Commission, which put a stop to Comcast Corporation (NASDAQ: CMCSA)’s attempt to buy Time Warner of $45 billion only a month before the new deal was announced.
Charter and Time Warner initially said they expected the deal to close before the end of the year when they made the agreement back in May, but it appears the merger won’t be final until sometime in 2016. The FCC has been particularly meticulous in investigating the deal in order to ensure that it doesn’t violate any of the agency’s rules.
In October, Dell announced plans to purchase EMC for around $67 billion in the second largest tech merger ever to take place. Still holding the number one spot is the infamous failed merger between Time Warner Cable and AOL, Inc. (NYSE: AOL), a path Dell and EMC desperately hope not to follow.
The deal will bring EMC’s expertise in cloud and virtualization software under Dell’s umbrella and is likely to boost the computer-maker’s share price significantly. The agreement is also expected to up the sales of EMC products, as Dell computers provide a great channel for the company’s products.
For customers, the merge is unlikely to mean much as the two companies already have a close relationship, but many are speculating that the new firm will lay off a significant number of employees in order to cut down on costs in the coming year.
Dell has said that its merge with EMC will offer Dell customers more seamless integration and more choice when it comes to buying PCs. It is also likely to help Dell compete with low prices offered by competitors like Oracle Corporation (NYSE: ORCL), HP Inc (NYSE: HPQ) and International Business Machines Corp. (NYSE: IBM).
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