The Top 5 M&A Deals of 201601 March, 2017
Distrust of big business around the world is on the rise, and perhaps for good reason. This skepticism was evident among voters in the U.S. during the 2016 election year and was a topic that presidential candidates capitalized on. In a campaign speech for Hillary Clinton, Elizabeth Warren compared some of the biggest tech companies to the banks that caused the financial collapse.
All companies deserve to be “highly profitable and successful,” said Warren. “But the opportunity to compete must remain open for new entrants and smaller competitors that want their chance to change the world again.”
Both presidential candidates made promises throughout their campaigns to reel in companies that were getting too big for their britches. Donald Trump and Hillary Clinton both pointed disapproving fingers at various consolidations announced during the election cycle, arguing that the deals, especially one between AT&T and Time Warner, would give the combined entities too much power at the expense of consumers.
Echoing Warren’s concerns, critics of the AT&T/Time Warner merger posit that as corporations get bigger, the economy becomes less dynamic, less innovative and slower-growing. The AT&T/Time Warner merger would give one of the biggest owners of the distribution of content to consumers (AT&T) control over the maker of that content (Time Warner). As a result, AT&T would have a massive incentive to stifle content from competitors.
It’s too early to tell whether the Trump administration will intervene and attempt to block mega deals like the AT&T/Time Warner merger as he indicated he might, but it seems unlikely. Ever since the Reagan era, the U.S. government has not had a strong track record of breaking up monopolies and rarely attempts to slow their growth.
Although the average deal value for 2016 ($104M) was similar to 2015 ($115M) and the largest deals announced were not big enough to crack the all-time Top 10, there were some mega deals that have the potential for major consumer consequences.
Here are the top 5 M&A deals of 2016:
5. Qualcomm and NXP Semiconductors: $47B
In late October of 2016, San Diego-based mobile technology giant Qualcomm announced plans to buy Dutch manufacturer NXP Semiconductors for about $47 billion including debt—making it the biggest semiconductor deal on record. Expected to close by the end of 2017, it’s a game-changing deal that adds both scale and brand new markets to Qualcomm’s portfolio, including chips for self-driving cars, mobile payment devices, sensors for drones and other smart devices. Qualcomm already boasts that, “billions, maybe trillions of times a day, people around the world touch something made by Qualcomm.”
4. British American Tobacco and Reynolds American: $49B
Renewing the consolidation mania in the tobacco industry, British American Tobacco agreed to pay $49.4 billion in cash and stock for full control of Reynolds American. British American Tobacco already owned 42% of Reynolds; the announced deal involved purchasing the remaining 58%. The combination of the two companies comes at a time when tobacco companies have been struggling to gain market share, and fighting to create attractive cigarette alternatives. The two cigarette companies hold some of the biggest selling brands on the planet, including Pall Mall, Lucky Strikes, Camel and Newport. The combined tobacco giant will be the only major industry player with big market share in both the U.S. and overseas.
3. Sunoco Logistics and Energy Transfer Partners: $52B
Pipeline companies Sunoco Logistics Partners and Energy Transfer Partners (ETP), both of which are controlled by general partner Energy Transfer Equity, announced in late November that they would combine in a corporate consolidation to cut borrowing and operating costs.
Energy Transfer Partners is the main company behind the controversial $3.7B Dakota Access Pipeline, which has been delayed since September, when federal regulators decided to re-review permitting for the project to cross land owned by the federal government.
According to the two companies, the combined entity is expected to yield over $200 million in annual savings by 2019, while also attaining what the companies called, “increased diversification through the combination of Energy Transfer Partner’s primarily gas-focused and Sunoco’s primarily liquids-focused businesses.”
2. Bayer and Monsanto: $66B
Bayer is known primarily for its pharmaceutical products, such as Bayer Aspirin, Aleve, Alka Seltzer, Claritin, Coppertone and Dr. Scholl’s. However, the Monsanto deal would pivot the company more towards its business in agriculture chemicals, crop supplies and compounds that kill bugs and weeds.
Monsanto is the world’s largest supplier of genetically modified seeds, which dominate American farming, but are still a major source of environmental controversy in Europe and abroad. The 20,000-employee company also develops Roundup, the weed-killing herbicide.
The combined company would become one of the world’s largest agricultural conglomerates controlling over a quarter of the global supply of seeds and pesticides and potentially reshaping the development of seeds and pesticides necessary to fuel the planet’s food supply.
The deal is likely to garner intense scrutiny from U.S. and German antitrust regulators, as they assess whether the merger would unfairly lead to higher prices for farmers worldwide.
1. AT&T and Time Warner: $85.4 billion
This combination of two telecom giants has become one of the most talked about deals of the year—not only for its size, but also because of its media exposure in the election season. Through their ownership of various communications systems, including cable-TV infrastructure, broadband Internet services, satellite TV systems and cellular-data networks, the two companies have an unusually large influence over the ways information and entertainment reach consumers. After AT&T and Time Warner announced their plans to become a single company in October, then-candidate Trump criticized the deal. Experts now say that it’s unlikely that Trump will block the acquisition, because the team that Trump has assembled, including his attorney general, are known to have a laissez-faire attitude to business regulation.