Business Essentials for Professionals


Wall Street Weary of Mega Deals Following New Rules, Increased Antitrust Scrutiny

Wall Street Weary of Mega Deals Following New Rules, Increased Antitrust Scrutiny
For Wall Street's top dealmakers 2015 was a dream year while 2016 has started out with a jolt and threatens to take a nightmarish turn.
This is because some of the mega transactions that had ignited passion in the Wall Street at the beginning of the year have managed to put the lid on the enthusiasm.
The case of pharmaceutical firm Pfizer Inc's $160 billion takeover of rival Allergan PLC for example was scrapped after it ran in to political opposition over the issue of the biggest drug company in the United States moving to Ireland to lower its taxes. While not naming the company or the deal, a new set of rules by the U.S. Treasury unveiled recently had provisions that targeted a specific feature of their agreement and prompted both parties to walk away from what would have been the second-largest deal of all time.
Apart from a number of legal challenges to big transactions such as Halliburton Co's takeover of rival oil services company Baker Hughes Inc on antitrust grounds, this move by the Obama administration to suddenly change the rules has sent a chilling message to dealmakers at Wall Street.
The present environment of political uncertainty and antitrust concerns translates to firms taking a rethink about future tie-ups which have the potential to consolidate industries and move tax dollars offshore.
"As uncertainty increases on multiple fronts, companies are markedly more cautious and the number of transformational deals worth $10 billion or more has significantly dropped this quarter compared to last year," said Luigi Rizzo, head of mergers and acquisitions (M&A) for Europe, the Middle East and Africa at Bank of America Merrill Lynch.
A message to company bosses about the risks of attempting to move their tax addresses overseas has been sent even as the new U.S. rules do not directly affect most inversion deals, in which an American company buys a foreign counterpart and then moves abroad to lower its tax bill.
According to people familiar with the internal deliberations between the possible deal between Intercontinental Exchange Inc, the U.S. exchange and the London Stock Exchange Group PLC where the former is bidding for a takeover of the later said that any possible deal for the LSE as an inversion, despite it being possible to do so, has been ruled out, said media reports.  
No comment was forthcoming from the Intercontinental Exchange.
The new tax rules were unveiled this week were the Obama administration's third effort to stop U.S. companies renouncing their American citizenship but they are only a temporary stopgap.
"We have succeeded in making it significantly harder for companies to strike inversion deals and redomicile overseas," said U.S. congressman Peter Welch. "But we still need action in Congress."
What has made deals all the more difficult to strike is the fact that it is the US Presidential election year which will take place later this year and there is much uncertainty about what shape such legislation would take.
Thompson Reuters data shows that in 2015, the total M&A deals that were inked were valued at $4.6 trillion. Of these there were 18 individual deals that were valued at more than $30 billion compared with seven deals worth more than $30 billion in 2014
However increased scrutiny by antitrust officials was the result of greater consolidation. This became evident after U.S. government filed a lawsuit to stop Halliburton from buying Baker Hughes. The government alleged that the combination of the No. 2 and No. 3 oil services companies would lead to higher prices in the sector.
"It isn't just the number of proposed deals that makes this a unique moment in antitrust enforcement; it's their size and their complexity. This represents a remarkable shift toward consolidation and it presents unique challenges to federal enforcers in our work to maintain markets that serve not just top executives and majority shareholders, but every American," U.S. Attorney General Loretta Lynch said in a speech.
(Adapted from 

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc