By Shayndi Raice
One of the best years ever for mergers and acquisitions could
have been even better.
After years of sluggish activity, the M&A market shifted
into high gear in 2014. There were $3.4 trillion of deals struck
globally, up about 30% from the prior year, according to Dealogic.
That's the largest total since 2007.
It was also a banner year for attempted deals that foundered, as
a government crackdown on a popular tax-driven merger strategy and
other factors weighed on the market. The value of takeover
proposals that were rejected or withdrawn totaled more than $570
billion in 2014, more than double the prior year's total and the
second-highest tally on record after 2008.
The two largest attempted deals of the year-- Pfizer Inc.'s
roughly $120 billion bid for British drug company AstraZeneca PLC
and 21st Century Fox Inc.'s effort to buy Time Warner Inc. for $80
billion--were consigned to the M&A scrap heap after the bids
were rejected and the suitors walked away.
AbbVie Inc., meanwhile, pulled the plug on its agreement to buy
Dublin-based drug maker Shire PLC for $54 billion after the U.S.
government announced a set of rules aimed at making the deal and
other so-called tax inversions unattractive for companies
attempting them.
If those and other abortive takeover efforts had come to
fruition, it would have pushed last year's deal value to about $4
trillion, making 2014 the second-best year on record for M&A,
outpacing the $3.7 trillion of deals signed in 2006. The 2014 tally
is still the third-highest on record.
While a number of ingredients for global deal making fell into
place in 2014, there were formidable obstacles too.
Inversion deals became popular in 2014. They involve a U.S.
business buying a company in a lower-tax country so it can switch
its legal home and cut its tax bills. The strategy particularly
appealed to pharmaceutical companies, whose overseas sales generate
significant income that can't be brought back to the U.S. without
the company taking a tax hit.
In September, however, the U.S. Treasury issued rules that make
such deals less attractive financially. AbbVie cited those rules in
abandoning its deal with Shire. AstraZeneca officials pointed to
the potential for political resistance as one its reasons for
turning away Pfizer's repeated takeover approaches before the U.S.
drug giant gave up on the effort.
The eurozone, meanwhile, registered annualized growth of just
0.6% in the third quarter of 2014 as it continued to grapple with
the aftereffects of the financial crisis. Gross domestic product in
the region remained more than 2% below where it was when the global
financial crisis hit in 2008.
When companies are uncertain about the future of the economies
in which they operate, buyers and sellers have a harder time
agreeing on price and other terms, bankers say.
"Where there's uncertainty, the buyers rightly have a cautious
view of the future, whereas sellers still have rosy prospects,"
said Matthew Ponsonby, head of M&A in the European region at
Barclays PLC.
That helps explain why Europe, the Middle East and Africa, known
as EMEA, accounted for more than half the value of abandoned deals
in 2014, according to Dealogic. EMEA deal volume lagged the global
pace, growing 15% to $972 billion.
There were more than $300 billion of withdrawn or rejected
mergers in the region last year, more than triple last year's tally
and the highest total since 2008. Both the AstraZenenca and Shire
deals would have been considered European because the target
company was located in Europe.
Some bankers see a silver lining in all the failed deal
attempts. The fact that companies are contemplating such moves is a
sign that chief executives and boards once again have an appetite
for large-scale M&A, they say.
There's "a healthy level of strategic dialogue taking place in
many important industries," said François-Xavier de Mallmann, the
global co-head of consumer, retail and health-care investment
banking at Goldman Sachs Group Inc. in London.
Potential deals that stumbled because of differences between the
parties on price and other matters included SABMiller PLC's
overture to Heineken NV, which has a market capitalization of EUR34
billion ($41 billion). The Dutch brewer rejected the approach,
saying in September that it was "nonactionable." It didn't
elaborate.
In October, France's Iliad SA walked away from a bid for control
of T-Mobile US Inc., saying the wireless carrier's parent, Deutsche
Telekom AG, wasn't interested in the offer.
Political issues also chilled the M&A environment. Pfizer's
approach to AstraZeneca, for example, came under heavy scrutiny
from the British government, which was fearful of the impact on
jobs.
There would have been an even bigger broken-deals tally if
another effort hadn't failed before it became public. U.K. mining
giant Rio Tinto PLC, with a market value of GBP56 billion ($87
billion), rebuffed a takeover approach from Glencore PLC this
summer. Rio Tinto rejected the offer because it didn't include a
premium, a person familiar with the matter has said.
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