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Suntory to Charter Deals Spur Optimism 2014 Rebound Is Real

Bottles of Bourbon are filled at the Beam Distillery in Clermont
Bottles of Knob Creek single barrel bourbon are filled on the bottling line at the Beam Inc. distillery in Clermont, Kentucky. Suntory said it agreed to buy spirits maker Beam Inc. for about $16 billion including debt. Photographer: Luke Sharrett/Bloomberg

Jan. 14 (Bloomberg) -- When it comes to mergers and acquisitions, 2014 has started with a bang. Investment bankers are hoping this won’t be another year that ends with a whimper.

Proposed deals by Charter Communications Inc., Suntory Holdings Ltd. and Google Inc. brought the value of takeover offers worldwide this year to $130 billion, data compiled by Bloomberg show. In the cards are possible bids this year to buy the majority of T-Mobile US Inc. and a merger of AT&T Inc. and Vodafone Group Plc, according to people familiar with the situations.

While the early activity has heartened bankers, such bursts of deals don’t always signal a strong year. Last February an even larger amount of transactions was announced over a two-week period. The resulting optimism by investment bankers was dashed when M&A petered out, especially in the mid-sized transactions that account for the bulk of their fees.

“We certainly have some things in place that would make the M&A market go,” said Donna Hitscherich, a senior lecturer at Columbia Business School, citing the strengthening economy, low interest rates and high cash levels on balance sheets. “But it’s a confidence game. When several major CEOs say, ‘this year’s different than last year’ -- that’s what it’s going to take.”

Charter’s Bid

Charter revealed yesterday it is seeking to purchase Time Warner Cable Inc. for about $61.3 billion including debt. Suntory said it agreed to buy spirits maker Beam Inc. for about $16 billion including debt.

Google is buying digital thermostat maker Nest Labs for $3.2 billion as the Internet search company moves deeper into web-connected devices, while Goldcorp Inc., the world’s second-largest miner of the metal, made an unsolicited offer to buy Osisko Mining Corp. for about C$2.6 billion ($2.38 billion) in a deal that would make it the largest producer in Quebec.

Earlier this month, Forest Laboratories Inc. said it will buy Aptalis Pharma for $2.9 billion, while Fiat SpA struck a $4.35 billion deal to take full control of Chrysler Group LLC.

The announcements so far have pushed Morgan Stanley to an early lead in the rankings of M&A advisers this year, with eight deals at a value of about $23 billion under its belt, data compiled by Bloomberg show. Credit Suisse AG and Centerview Partners LLP rank second and third.

The last time two deals of over $10 billion in size were announced on the same day was Feb. 5 of last year, according to data compiled by Bloomberg. That day, Dell Inc. received a $24 billion buyout offer from founder Michael Dell and Liberty Global Plc said it would buy Virgin Media Inc. for $23 billion.

Lingering Uncertainty

Those deals helped lift the value of announcements in the first two weeks of February to $157.8 billion, touching off speculation that 2013 would finally reverse the M&A slowdown. By the end of the year, companies had announced $2.3 trillion of purchases -- a slight increase over 2012 and still well below the $4.1 trillion peak in 2007, the data show.

The volume of smaller transactions -- below $5 billion in size -- fell to $1.7 trillion compared with $2.6 trillion announced in 2007, the data show. These deals typically account for close to 90 percent of advisory fees, according to New York-based research firm Freeman & Co.

Elements that kept decision makers from striking deals last year are still in place, including lingering uncertainty about the federal budget and the impact of the Affordable Care Act, said Mark Walsh, who leads U.S. M&A for Deloitte Consulting LLP.

“We’re at the same spot we were at last year,” Walsh said in a phone interview. “Finance reform still isn’t 100 percent clear; health care reform is clearer than it was but it’s still not 100 percent clear. And the federal budget situation is better, but it’s still not clear. We’re still missing that touch of certainty that says this year is different.”

Deal Pipeline

Some factors point to a stronger 2014. The U.S. Federal Reserve signaled in December it will wind down asset purchases as a recovery gathers pace in the world’s largest economy. In the euro zone, economic crises in Greece, Italy and Spain have retreated from the headlines, with Spain now borrowing money at costs little higher than those in Germany.

“The economy had to be at a strong enough level before the Fed would be prepared to taper,” said Frank Aquila, a partner at New York-based law firm Sullivan & Cromwell LLP. “We’ve gotten to that point. People in the board room, people in the C-suite, are seeing that in their industries, and that’s what’s been lacking over the past few years.”

T-Mobile Takeover

Companies are sitting on cash reserves of at least $4.4 trillion, up from $3.9 trillion in 2011, after sales of investment-grade corporate bonds in the U.S. last year reached an all-time high of $1.14 trillion, according to data complied by Bloomberg.

“We feel very good about 2014,” said Jack MacDonald, co-head of Americas M&A at Bank of America Corp. “The fundamentals were very strong last year, but there was still a lot of uncertainty going back to late 2012. There was the U.S. election, the debt crisis, uncertainty around Europe and concerns about growth in China.”

Large transactions may occur this year in the telecommunications industry, which is consolidating as costs rise for building high-speed data networks. SoftBank Corp. Chief Executive Officer Masayoshi Son is weighing a purchase of the majority of T-Mobile by Sprint Corp., people with knowledge of the matter have said.

AT&T is making internal preparations for a possible merger with Vodafone, a combination that would create the world’s largest phone company, and Liberty Global is putting the final touches on an acquisition of Dutch broadband provider Ziggo NV, according to people with knowledge of the situations. Those three purchases alone would be valued at over $200 billion.

“You’ve seen the initial blips this first month and it’s a good sign, but is it the same as last year or is it different?” said Walsh at Deloitte.

To contact the reporters on this story: Alex Sherman in New York at asherman6@bloomberg.net; Matthew Campbell in London at mcampbell39@bloomberg.net

To contact the editors responsible for this story: Mohammed Hadi at mhadi1@bloomberg.net; Aaron Kirchfeld at akirchfeld@bloomberg.net

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