Photographer: Jason Alden/Bloomberg

European Deals on Endangered List as Brexit Referendum Nears

If the U.K. votes to leave the European Union this week, it’ll mean a major upheaval for a number of industries that will suddenly find themselves unsure about regulations, their ability to raise funds and how British companies will fit in with the rest of the continent in the years ahead.

Companies on the cusp of major acquisitions or deals could be more vulnerable to the new complexities than most, not to mention huge swings in stocks and currencies. A vote to leave could erode mergers and acquisitions across Europe and hurt the value of assets on the continent, according to a survey of M&A professionals by Intralinks Holdings Inc. this month. Polls show a close race, with the two sides only a point or two apart.

“The M&A market really dislikes any degree of uncertainty, and this is huge uncertainty,” Frank Aquila, a New York-based partner focused on mergers and acquisitions at law firm Sullivan & Cromwell LLP said on Bloomberg TV Monday. 

Here are a few deals—and potential combinations—to watch: 

Deutsche Boerse-London Stock Exchange

Financial traders monitor data inside Frankfurt Stock Exchange.

Financial traders monitor data inside Frankfurt Stock Exchange.

Photographer: Jasper Juinen/Bloomberg

Deutsche Boerse AG is planning to buy London Stock Exchange Plc, creating a cross-border behemoth that would be one of the biggest exchange operators in the world. While both companies have said that the deal makes sense even if the U.K. votes to leave, Germany’s lawmakers, already unhappy about the plan to base the combined company in London, aren’t so sure.

Legislators interviewed by Bloomberg have said new regulatory issues arising from a Brexit would mean that the merger proposal, particularly plans for headquarters outside of the EU, would need to be reassessed. Shareholders will get a chance to weigh in after the vote, in July.

Telefonica’s O2

An O2 logo sits in the window of a Telefonica retail store in Prague.

An O2 logo sits in the window of a Telefonica retail store in Prague.

Photographer: Martin Divisek/Bloomberg

Telefonica SA had planned to offload its U.K. mobile business, O2, this year in a 10.3 billion pound ($15.1 billion) sale to CK Hutchison Holdings Ltd. European regulators had other ideas, blocking the plan to merge O2 with Hutchison’s Three business on competition and pricing concerns, and leaving the Spanish phone company to look for other options.

Liberty Global Plc, the TV and internet company that operates the U.K.’s Virgin Media, might consider making an offer, CEO Mike Fries has said. Private equity firms KKR & Co., TPG and Bain Capital are also possible suitors, the Sunday Telegraph reported last month. Telefonica may also sell a stake to a partner or through an initial public offering, a person familiar with the plans has said. 

Still, in the event of a Brexit, any sale or IPO would have to be delayed until after “markets stabilize and companies assess the real impact of Brexit on the valuations and operations of their businesses,” Andres Bolumburu, a Madrid-based telecommunications analyst at Banco de Sabadell SA, said in an interview.

The company is giving serious consideration to an IPO as well as other options, including a sale to private equity, though no decision has been made, an O2 spokesman said, declining to comment further.

Vodafone-Liberty Global

Vodafone

Pedestrians walk in front of an advertisement outside a Vodafone store.

Photographer: Chris Ratcliffe/Bloomberg

A potential tie up between Vodafone Group Plc and John Malone’s Liberty Global would create one of the biggest pan-European sellers of mobile, TV, internet and home phone service.

Malone said in May last year that a combination in western Europe would make sense, and people familiar with the matter said in late 2014 that the firms have previously discussed a broader asset swap or full merger. While the two companies haven’t disclosed any current talks about a combination, they’re cooperating on a joint venture in the Netherlands.

 Still, a Brexit could make it harder for the companies to raise the cash they might need for a potential deal. Political and economic uncertainty if the U.K.’s chooses to leave would trigger “huge market volatility,” Bolumburu said. “In the end, you don’t want to be caught in the middle of a major transaction that could be jeopardized by the outcome of the vote.”

 Representatives for Vodafone and Liberty declined to comment.

Deustche Bahn's Arriva

Trains operated by Deutsche Bahn are seen waiting for rail signals outside the central railway station in Frankfurt.

Trains operated by Deutsche Bahn are seen waiting for rail signals outside the central railway station in Frankfurt.

Photographer: Martin Leissl/Bloomberg

Deutsche Bahn AG, the German railway operator, has been weighing an initial public offering of its Arriva business, which operates London buses and overground trains, according to local press reports. 

A Brexit would harm both Deutsche Bahn, which relies on freedom of movement and international trade for expansion, and its plans to list its U.K. business, CEO Ruediger Grube said in an interview with the Handelsblatt newspaper in April.


The (Not So) Mighty Pound

Other deals may face complications because of a potential Brexit’s impact on their value. The pound may fall in relation to other currencies, changing the dynamics for businesses that agreed to cross-border deals when it was stronger. The British currency has been sensitive to polling data, jumping to its highest level since the EU referendum date was set on Tuesday as surveys showed the public leaning against leaving the union.

Belgium’s Anheuser-Busch InBev NV and London’s SABMiller Plc agreed to combine to create the world’s biggest brewer in October. Since SABMiller gets most of earnings from outside of Europe, a decline in the pound would make AB Inbev’s offer less attractive, according to a note from Churchill Capital. That’s because the value of its future earnings, generated in other currencies, would be worth more when converted back to the weaker sterling, it said. Churchill says the deal will likely still get done, classifying it as only moderately at risk.

Representatives for AB InBev and SABMiller declined to comment.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE