Buffett's Heinz Deal Catches Up With M&A Wave
Is it just me, or has there been an abundance of mega-merger announcements lately? Warren Buffett's Berkshire Hathaway Inc. today said it would join with a Brazilian private equity firm to buy H.J. Heinz Co., the condiments maker, in a $23 billion deal. This comes on the heels of an agreement by AMR Corp.'s American Airlines and US Airways Group Inc. to form the world's largest carrier, for an $11 billion deal. And Dell Inc. agreed to a multi-party buyout for $18 billion.
Also today, U.S. antitrust authorities cleared the proposed merger of Random House and Penguin, which would create the biggest book publisher in the world if European Union authorities bless the combo.
The long drought appears to be ending for M&A bankers and lawyers. It's not just in the U.S., either: The U.K.'s Virgin Media Inc. is selling itself to Liberty Global Inc. for $22 billion. Belgian beverage company Anheuser-Busch InBev NV hopes to slake its thirst for Mexican rival Grupo Modelo SAB (aka the Budweiser-Corona beer-fest) in a $17 billion fusion.
The Chinese continue to snatch up energy companies, with Cnooc Ltd. making a $17 billion bid for Canadian offshore oil exploration company Nexen Inc. Not to be outdone, Swiss-based Glencore International Plc is still awaiting regulatory approval from a handful of countries to acquire the U.K.'s Xstrata Plc for $47 billion.
Is there something in the water? Yes, sort of. Companies are sitting on mountains of cash. With the U.S. economy recovering and Europe's debt crisis easing, executives are more confident that a multi-billion-dollar wager will pay off.
The cash pile at Berkshire Hathaway had swelled to $45 billion recently. Buffett, who already owns insurer Geico, the Dairy Queen chain, the Burlington Northern Santa Fe railroad and underwear company Fruit of the Loom, was very public about his search for an "elephant." That's Buffett's term for attractive companies with popular brands, strong cash flow, good management and global growth potential.
Some of the recent M&A mania is central-bank-induced. Interest rates are at rock bottom almost everywhere, so cash sitting on a corporate balance sheet earns very little interest. At the same time, the cost of borrowing to finance a takeover is very low.
A herd mentality is also at work. Stock markets are rising, pressuring executives to pounce on an attractive target before someone else does -- or before the target's shares get too costly.
And don't forget the hedge-fund crowd, which is getting increasingly impatient with companies holding excess cash without ideas on how to spend it.
David Einhorn, president of Greenlight Capital Inc., is just the latest example. He is suing Apple Inc. over its $137 billion cash hoard. Einhorn hopes to bar Apple from adopting a measure that would restrict its ability to issue preferred stock. Einhorn wants Apple to issue such shares paying a 4 percent yield -- free of charge and freely tradable.
Apple's response? Leave us alone; we're busy making acquisitions at the rate of one company every two months.
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Paula Dwyer at firstname.lastname@example.org