Corporate Finance : Bailouts Cushion Decline In 2008 Global Mergers



The volume of worldwide mergers and acquisitions fell 30% last year compared with 2007, but the decline in announced deals would have been even larger without the government bailouts of financial institutions, which represented a significant share of M&A; activity.

The financials sector accounted for 22.4% of all European deals in 2008, according to Thomson Reuters. This reflected the United Kingdom’s $26.1 billion equity investment in the Royal Bank of Scotland, the Dutch government’s $23.1 billion acquisition of Fortis Bank Netherlands and the UK government’s $14.8 billion acquisition of a majority interest in HBOS, the holding company that owns Halifax and Bank of Scotland.

Worldwide M&A; transactions announced in 2008 totaled $2.9 trillion, a decrease of 29.6% from 2007, ending five consecutive years of M&A; growth, according to Thomson Reuters. Goldman Sachs was the leading financial adviser for M&A; deals announced globally in 2008, followed by J.P. Morgan, Citi, UBS and Morgan Stanley.

“Highlighting the difficult dealmaking environment was a spike in the number of withdrawn M&A; transactions, which hit an all-time record in 2008,” Thomson Reuters said in its report on last year’s merger activity. A total of $324 billion of deals involving targets located in the Americas were withdrawn in 2008, including the $46.8 billion leveraged buyout of BCE, Canada’s largest telecom group, which would have been the largest LBO ever if it had been completed. Microsoft’s $41.9 billion bid to acquire Yahoo was another major announced deal that was withdrawn last year.

Mergers and acquisitions in the United States totaled $986.3 billion in 2008, a 37.2% decline from 2007, according to Thomson Reuters. Government investment activity, including sovereign wealth fund investments, comprised a record 5.5% of the total. The Singapore Investment Authority invested $6.9 billion in Citi. The Kuwait Investment Authority and Korea Investment Corporation invested $2 billion in Merrill Lynch.

The US Treasury Department committed to purchase up to $250 billion in non-convertible senior preferred stock under its Troubled Asset Relief Program (TARP), but Thomson Reuters classified these securities as debt instruments. The treasury also received warrants to purchase common stock with a total market value equal to 15% of each senior preferred investment for publicly traded securities and 5% for privately held securities.

Bolstered by strong deal activity in China and Southeast Asia, the M&A; total in the Asia-Pacific region fell by a relatively small 8.7% in 2008, compared with 2007. China had a record of nearly $160 billion in deal activity last year, a 44% increase from 2007. China’s cross-border M&A; activity rose by 51% to a record $78.4 billion.

US M&A; activity ground to a near standstill in December 2008. MatlinPatterson Global Advisers’ agreement to invest $250 million in Troy, Michigan-based Flagstar Bancorp was the only major transaction outside of the treasury’s TARP program. MatlinPatterson, a private equity franchise, agreed to acquire voting preferred stock convertible into a 70% interest in Flagstar Bancorp, the largest publicly held savings bank based in the Midwest.

Citi Infrastructure Investors’ (CII) agreement to acquire a majority stake in Spain-based Itínere Infraestructuras from heavily indebted construction group Sacyr Vallehermoso was the biggest transaction in Europe in December. “Itínere will be CII’s platform to invest in mature toll roads in OECD [Organization for Economic Cooperation and Development] countries,” says Fidel Andueza, a partner at CII.

The biggest transaction announced in December was in Japan, where Panasonic agreed to launch a tender offer to acquire Sanyo Electric. The deal, valued at more than $11 billion, would give Panasonic the lead in the global rechargeable battery market.




Gordon Platt