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THE INVESTOR
viewpoint
an age of globalisation where the world is coming to be dominated
by a relatively small list of giant companies – are very big deals, but
fewer of them.
While the US was leading the way in deal activity, first-half figures
suggest that the rest of the world may be catching up, with European
mergers and acquisitions doubling compared with the same period last
year, andAsia-Pacific having its best six months sinceThomson Reuters
started collating the data in the region in 1980.
Much of the activity had been concentrated
in just a few sectors: technology, media
and telecoms. However, pharmaceuticals
and healthcare – not counting Pfizer’s
unsuccessful $100 billion tilt at AstraZeneca
– have now taken the lead in terms of activity.
Meanwhile, there has been little to no activity
in mainstream sectors such as industrials,
energy or consumer groups, and very little in
finance, which is surprising given how many
weakened businesses there are out there.
Even more striking is the change in mining, long the home of
the mega takeover, where sentiment is actually going the other
way. Industry giant BHP Billiton now plans to spin off a slice of its
business so large that if it were to be listed in London it would be a
FTSE 100 company. Its chief executive says he craves simplicity. He
believes that the sheer complexity of these vast companies means
they don’t do anything as well as they should.
But not many out there are listening to his words of caution.
Bids are getting bigger because markets are global, they are back in
fashion because confidence has returned and they can be financed
because money is cheap and share prices high. Having managed
their companies through hard times, executives are now looking
for other ways to deliver growth. Consider
also, a quirk in the country’s tax legislation
makes it advantageous for US companies to
relocate overseas if they also have a big non-
American shareholder base.The simplest way
to achieve this is to buy abroad.This drove
Pfizer’s approach toAstraZeneca and was an
underlying reason behindAbbVie’s $54 billion
purchase of Shire Pharmaceuticals.You do
have to ask, however, if all this activity actually
delivers what is expected of it?The theory is
clear enough – a management team that underperforms is bought out
by a more skilled team that can use the assets better.Takeovers are
capitalism’s way of dealing with bad management.
But the reality is rarely that simple. Often, it is the good
businesses that get taken over, sometimes by a company that is less
good but has deep pockets. Kraft’s purchase of Cadbury was arguably
Between half and
three-quarters of
bids are followed by
a fall in the bidder’s
share price
takeovers
