A banner year for mergers and acquisitions will be followed by more deals next year as executives grow more confident in the strength of the US economy, according to the consultancy company EY.
On Monday, drugmaker Merck announced that it was spending US$8.4 billion to buy Cubist Pharmaceuticals in another sign of the recovering confidence in the market for mergers and acquisitions.
The tie-up helped boost the total value of global deals this year so far to US$3.4 trillion. Even if there are not any more big deals announced this year, it would be the best year since a total of US$4.6 trillion of deals were struck in 2007, according to financial data provider Dealogic.
Executives are becoming more confident about the prospects for growth as the US economy continues to strengthen, despite sluggishness overseas.
A more stable atmosphere in Washington is also helping to build up confidence, said Rich Jeanneret, EY Americas vice chair of transaction advisory services.
For investors, that is a welcome change from a recent pattern of spats among lawmakers in recent years that held up spending bills and threatened to bring the country close to defaulting on its debt.
“Brick by brick we’re building a strong economy, and I think that’s really boding well for the M&A [mergers and acquisitions] environment,” Jeanneret said. “Executives have confidence in this market.”
The outlook for deals is also being helped by the huge cash piles that companies have built up in the aftermath of the financial crisis.
Companies listed in the Standard & Poor’s 500 index hold about US$1.2 trillion in cash and cash-equivalent securities, according to S&P Capital IQ. That is close to a record.
The increase in deals has been one of the factors that sent stock indices up to record levels this year. Mergers are typically good for stock prices, at least for the companies being bought, because the acquiring company normally pays a premium to ensure that the deal is approved by shareholders of the company being acquired.
For example, Cubist’s stock surged after Merck offered to pay US$102 per share of Cubist, a 37 percent premium to its closing price on Friday.
Still, mergers are not all good news.
If a tie-up is between two companies in the same field then job cuts often result as the companies try to seek greater efficiencies by cutting headcount.
This year, a wave of mergers was also driven by US companies seeking so-called tax inversions. By acquiring an overseas company, the US business can reincorporate its business overseas in a jurisdiction with lower taxes, allowing the company to lower its tax rate. The tactic drew criticism from US President Barack Obama, who described them as unpatriotic because they were eroding the US’ tax base.
Of course, sometimes mergers just do not work out. AOL’s takeover of Time Warner at the peak of the Internet bubble is a classic example. Time Warner wound up spinning off AOL in May 2009, nine years after a US$166 billion merger at the peak of the Internet bubble.
In 2002 and 2003, Time Warner absorbed nearly US$100 billion in charges to account for the rapidly diminishing value of the combined company, as AOL’s subscription revenues plunged as its dial-up services were replaced by broadband connections.
Taiwan Transport and Storage Corp (TTS, 台灣通運倉儲) yesterday unveiled its first electric tractor unit — manufactured by Volvo Trucks — in a ceremony in Taipei, and said the unit would soon be used to transport cement produced by Taiwan Cement Corp (TCC, 台灣水泥). Both TTS and TCC belong to TCC International Holdings Ltd (台泥國際集團). With the electric tractor unit, the Taipei-based cement firm would become the first in Taiwan to use electric vehicles to transport construction materials. TTS chairman Koo Kung-yi (辜公怡), Volvo Trucks vice president of sales and marketing Johan Selven, TCC president Roman Cheng (程耀輝) and Taikoo Motors Group
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
RECORD-BREAKING: TSMC’s net profit last quarter beat market expectations by expanding 8.9% and it was the best first-quarter profit in the chipmaker’s history Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which counts Nvidia Corp as a key customer, yesterday said that artificial intelligence (AI) server chip revenue is set to more than double this year from last year amid rising demand. The chipmaker expects the growth momentum to continue in the next five years with an annual compound growth rate of 50 percent, TSMC chief executive officer C.C. Wei (魏哲家) told investors yesterday. By 2028, AI chips’ contribution to revenue would climb to about 20 percent from a percentage in the low teens, Wei said. “Almost all the AI innovators are working with TSMC to address the
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”