Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

According to at least one top banker, the U.S. is so hungry for M&A that even post-election turmoil may not be enough to stifle dealmaking. Now, that notion will be put to the ultimate test.

On Monday, Scott Bok, head of New York-based investment bank Greenhill & Co. who was speaking in a Bloomberg TV interview, said that even though CEOs hate uncertainty, U.S. companies are more likely to use market volatility to their advantage.

Well, volatility they will have as Donald Trump, middle name unpredictable, makes his way to the White House. 

"It's in these more turbulent periods, or periods where people are worried about things, where the Europeans tend to just pull back and put things on hold. In America, it seems like we have a bit of a vulture investor mentality."

Of course, when Bok made these remarks, he -- like most others in the market -- were expecting Hillary Clinton to be the next president. While you certainly wouldn't call the Democratic candidate a friend to big corporate mergers, the fact that dealmakers generally knew where she stood was a plus.

With Trump, no one really knows. Is he for more financial regulation or less? He's said that he would repeal Dodd-Frank, yet wants to bring back Glass-Steagall. Is he against all blockbuster mergers that concentrate market power, or does he just take special issue with media companies? Whatever the case, his contradictions and fickleness are why S&P 500 index futures dropped as much as 5 percent after he became the apparent president-elect. (Losses were pared Wednesday with the index pretty much flat as jitters subsided.) 

Mixed Feelings
Investors at first concerned about the uncertainty Donald Trump brings are turning optimistic that his policies will be good for business
Source: Bloomberg
Intraday times are displayed in ET.

Trump said firmly in October -- a record month for deal activity -- that his administration would not approve AT&T Inc.'s $108.7 billion takeover of Time Warner Inc. because it would put too much power "in the hands of too few" and that such deals are "poison" to democracy. He added that he'd also break up the 2011 merger of Comcast and NBCUniversal. But how much of those comments were colored by his own media ambitions and disdain for the "totally dishonest" major news networks? Lest we forget, Time Warner owns CNN, which Trump has dubbed the Clinton News Network, and Comcast owns the left-leaning MSNBC. 

When Trump made those statements, his chances of winning weren't looking so good either -- he was under fire for lewd comments about women and accusations against him of sexual assault. That reignited speculation that Trump's game plan should he lose the election would be to use his newfound political power and right-wing connections to launch a conservative news network to rival Fox News. So, was he just talking his book, so to speak? Or is he really concerned about competition and consumers? 

Whether as president he intends to follow through on actually blocking or undoing these deals remains to be seen, and we probably won't know for a while. At least for Time Warner investors, the stock had already been trading at a huge 20 percent spread to AT&T's offer price and it reported solid earnings last week, so the downside if the deal were to collapse isn't so large. 

Baked In
The risk that AT&T's merger with Time Warner fails has already been largely priced in:
Source: Bloomberg

In other industries, Trump may instead open the door to more deals. He's looking to upend the health-care system put in place by President Barack Obama, which could ignite more merger activity. And as Gadfly's Max Nisen writes, some of the negative sentiment surrounding the industry as far as drug pricing could recede.

Furthermore, Trump has promised a tax reform plan that will make it unnecessary for American corporations to pursue the kind of tax-inversion deals that received so much political backlash in 2014 and 2015. The insinuation is that these companies would have better access to cash stuck overseas without the significant repatriation tax penalty they currently face (which may or may not be the case).

There's also merger talk swirling around wireless carriers T-Mobile US Inc. and Sprint Corp., as well as spectrum-owner Dish Network Corp. Would Trump feel the same way about these deals as he does the media tie-ups? We don't know, but what we do know is that current Federal Communications Commission Chairman Tom Wheeler is probably an obstacle. He's expected to step down sometime next year, and some industry analysts have said that could be good for industry dealmaking.

The caveat to a pro-M&A Trump administration is this: While he will be taking power in the midst of a strong American economy, if that were to change with his office, then CEOs might lose their confidence in doing big deals -- especially those that require large sums of debt. As I wrote last week, the cash-to-debt ratio for U.S. issuers is already shrinking and goodwill is getting dangerously high. We may be testing the limits of the market's ability to digest a protracted deal boom.

Art of the Deal
Will self-proclaimed dealmaker Donald Trump keep the merger train rolling?
Source: Bloomberg
Data include M&A and other transactions such as private-equity investments, joint ventures and spinoffs.

As for the broader M&A landscape, practitioners may fall back on this hopeful thought: Trump's controversial rhetoric aside, how can a guy who wrote the book on dealmaking not be good for the deal market? But that's the wrong question. The right one is this: Is Trump only a good dealmaker for Trump? That is still uncertain.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. One area where we may be able to rule out big acquisitions: Chinese cross-borders deals. Trump has made it clear that he thinks China is the biggest threat to the U.S. remaining competitive, and so any policies with respect to trade may keep Chinese suitors at bay. However, many China-to-U.S. acquisitions have been dead-on-arrival this year anyway. 

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net