Takeover Spree May Point to Second-Half Pickup as Volume Tops $1 Trillion
July 30 (Bloomberg) -- Bloomberg's Jon Erlichman reports on the latest breaking news and top stories in today's Business Briefs. (Source: Bloomberg)
A spate of mergers and acquisitions during the past two weeks may signal the start of a comeback for global dealmaking in the second half of 2010.
There have been 787 announced deals since July 19 with a total disclosed value of $86.4 billion, according to data compiled by Bloomberg. The surge pushed global deal volume past the $1 trillion mark for the year, more than a 10 percent increase over the first seven months of 2009.
M&A soured in the first half, with the biggest takeover of 2010 collapsing and stock and credit markets shaken by concern that Europe’s debt crisis would endanger a global economic recovery. Companies are now getting more confident as they increasingly hoard cash and borrowing costs fall, according to some dealmakers.
“While boards have been reluctant to pull the trigger, they’re getting more comfortable with the economic environment and so there may be a pickup,” said Wilhelm Schulz, head of European M&A at Citigroup Inc.
One obstacle to transactions may be U.S. growth, which slowed to a 2.4 percent annual rate in the second quarter, according to Commerce Department figures released today.
‘Better Flow’
The outlook in Europe is improving with economic confidence rising to the highest level in more than two years in July and German unemployment declining for a 13th month. All but seven of Europe’s 91 biggest banks passed regulators’ stress tests last week.
“We are clearly seeing better deal flow in the second half,” said Raju Shukla, head of Barclays Capital India, in a telephone interview from Hong Kong. “There were market hiccups due to the European crisis, which are now fading.”
July was marked by London-based BP Plc’s announcement that it plans to dispose of as much as $30 billion in assets in the next 18 months to raise cash to meet the costs of the Gulf of Mexico oil spill. Houston-based Apache Corp.’s $7 billion purchase of oil and gas fields in the U.S., Canada and Egypt from Europe’s largest oil producer by volume was among the biggest deals this month.
In telecommunications, one purchase was agreed this week following months of wrangling over price, and the transaction spawned another major takeover.
Telefonica SA on July 28 agreed to pay 7.5 billion euros ($9.76 billion) in cash for Portugal Telecom SGPS SA’s stake in Vivo Participacoes SA, their 50-50 venture that controls Brazil’s largest wireless operator. Telefonica made its first offer in May, two sweetened offers were rejected, and the successful bid was 32 percent higher.
System Backlog
Portugal Telecom didn’t want to relinquish the Vivo stake without securing another fast-growing business, so the same day the Lisbon-based company announced it would pay 8.44 billion reais ($4.8 billion) for a 22.4 percent stake in Brazil’s Telemar Norte Leste SA, known as Oi.
“There has been a well-publicized backlog in the system for some time and it seems like some of those transactions are finally being squeezed out of the pipeline,” said Scott Moeller, a professor at Cass Business School in London and a former investment banker at Deutsche Bank AG and Morgan Stanley.
More deals may be agreed in the coming weeks. Sanofi- Aventis SA has its board’s support to offer as much as $70 a share, or $18.7 billion, for Genzyme Corp., said three people with knowledge of the situation. A group led by Hong Kong billionaire Li Ka-shing’s Cheung Kong Infrastructure Holdings Ltd. offered to buy Electricite de France SA’s U.K. power networks unit for 5.8 billion pounds ($9.1 billion), according to a filing today to the Hong Kong stock exchange.
‘Still Worried’
“This deal is obviously very large, but we should be cautious in reading too much into it,” said Shaheryar Chishty, global head of industrials investment banking at Nomura Holdings Inc. in Hong Kong. “I don’t think this is a signal for broad- based, increased risk-taking across Asia. Decision makers are still worried about the sustainability of economic recovery and the volatility in the capital markets.”
Some M&A bankers say the recent burst in deals may be partly a seasonal phenomenon.
“July is normally a busy month because many companies try to push transactions through before the holiday period, but, regardless, there has been an improvement in sentiment, especially as we have seen a lot of companies reporting good earnings,” said Giuseppe Monarchi, head of Europe, Middle East and Africa M&A for Credit Suisse Group AG.
Companies “seem to be in better shape than many people had expected,” Monarchi said. “This clearly bodes well for M&A activity.”
Boom Years
Deal volume is still slow compared with the boom years of 2006 and 2007, when $3.51 trillion and $4.02 trillion of deals were announced, respectively, according to Bloomberg data. Those levels won’t be reached anytime soon, dealmakers said.
London-based Prudential Plc’s $35.5 billion agreement in March to buy American International Group Inc.’s AIA unit unraveled in the second quarter. That contributed to a 2 percent decline in global takeovers to $872.9 billion from $891.7 billion in the first half of 2009, according to Bloomberg data.
“It is a confidence game and CEOs have not been that willing to stick their necks out, resulting in a pretty flat first half,” said Moeller. “We obviously won’t be back to anything close to 2007 levels for a while.”
To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net
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