The Merger Boom That Fizzled

The Heinz and Dell deals raised hopes; then not much happened | “There is no doubt the dialogue and intensity are increasing”

David Welch, Aaron Kirchfeld, and Matthew Monks

Two big deals announced in February — Berkshire Hathaway’s $23 billion takeover of Heinz and the proposed $24.4 billion buyout of Dell — prompted speculation that a new wave of megamergers and buyouts was finally under way after a five-year drought. What’s happened since? Very little. The value of announced global mergers in March was about $100 billion through the 27th, on track for the lowest monthly total since July 2009.

Some on Wall Street say the Heinz and Dell deals were special situations that didn’t signal the start of a trend. Warren Buffett strikes when he sees an opportunity, and he can go for long stretches with

out making a major purchase. With Dell, the bidding was initiated by the company’s founder, who still controls 15.6 percent of the shares. Dell has also gotten bids from Blackstone Group and Carl Icahn. The two deals “may be unique to this quarter,” says Michael Carr, head of mergers and acquisitions for the Americas at Goldman Sachs.

At other companies, concern about U.S. government spending cuts, leadership changes in China, and persistent sovereign debt problems in Europe are weighing on executive confidence and inhibiting deals, according to Mark Shafir, co-head of global M&A at Citigroup.

“We are not getting the feeling we are in a sustained upturn,” he says. “March is a bit disconcerting.”

Even so, many dealmakers on Wall Street are still hoping for a rebound. With global corporations sitting on more than $4 trillion in cash, and equity markets at an almost five-year high, more companies are weighing acquisitions. Broad economic conditions create “a psychological barrier, but there is no doubt that the dialogue and intensity are increasing,” says Henrik Aslaksen, global head of investment banking at Deutsche Bank.

Verizon Communications and Vodafone Group are mulling options for their wireless joint venture, ranging from a full merger to a Verizon takeover of the unit, according to people familiar with the matter who asked not to be named because it’s a matter of privacy. A sale of Vodafone’s stake in the mobile venture alone could be valued at about $115 billion, based on analysts’ estimates, which would be the biggest deal in more than a decade. Life Technologies, a maker of DNA-sequencing equipment, said in January that it was working with Deutsche Bank and Moelis & Co. to find a buyer.

The best tonic for the merger market may be strong stock prices, says Steve Baronoff, chairman of global mergers and acquisitions at Bank of America in New York. That encourages chief executive officers to sell because they can obtain top dollar for their shareholders. And a rising share price makes it easier for a company to pay for takeovers with stock instead of cash. Also, private equity firms, flush with cash that they must put to use or return to investors, are on the prowl for $10 billion-plus targets, he says. About a quarter of the global transactions since Jan. 1 were private equity deals, according to data compiled by Bloomberg.

Bob Eatroff, Morgan Stanley’s co-head of M&A for the Americas, agrees that the conditions are favorable for a resurgence of deals. “There is water accumulating behind the dam,” he says. “The desire to do M&A doesn’t go away. It just kind of builds and builds over time. At some point the dam will give. Confidence will be there, and we will see a quick acceleration in M&A volume.”

The bottom line The value of global takeover and merger announcements fell to about $100 billion in March, the lowest monthly total since July 2009.

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