EDITORIAL: Appetite lost for megamergers
The growing number of regulatory hoops companies have to jump through globally a factor in the collapse of two megamergers
It has been a big few days for megamergers — more specifically for megamerger flops. First, Christo Wiese’s $30bn attempt to combine Steinhoff and Shoprite had to be abandoned because other shareholders so clearly didn’t support it. Further afield, consumer goods giant Kraft Heinz had to abandon its $143bn bid for Anglo-Dutch group Unilever, which made it clear it was resolutely opposed to any deal.
Sadly, that means we won’t have the many months of dramatic to-and-fro negotiations and grandstanding that often go with such deals or the drawn-out process of seeking regulatory clearances in jurisdictions around the world.
Shareholders in our two home-grown groups are not too unhappy about this. Shares in both Shoprite and Steinhoff jumped 7% on Monday on news that the two had terminated their talks. Though Wiese initially had the support of the Public Investment Commission for the deal, which could have led to a full takeover of Shoprite by Steinhoff, many of Shoprite’s other shareholders were concerned that their shares were being undervalued. In the end, agreement could not be reached on the ratio at which shares in the two companies would be exchanged.
At Unilever, shareholders were a little more disappointed at Kraft Heinz’s decision to take flight, with shares in Unilever losing 8% on Monday morning after the two companies jointly announced an "amicable" withdrawal by Kraft Heinz. Amicable was an issue because Kraft Heinz, which may have been pushed by media leaks into announcing its intentions prematurely, wanted a friendly takeover rather than a hostile bid battle. That, evidently, was not to be.
So, we won’t be seeing a combination basket that includes everything from Heinz tomato sauce to Dove soap and Magnum ice cream. Equally, Unilever will not be subject to the kind of cost-cutting that SABMiller undoubtedly will now that it has been taken over by Anheuser-Busch InBev — which, like Kraft Heinz, has Brazilian billionaire Jorge Paulo Lemann’s 3G Capital as one of its biggest shareholders and inspirer of deals.
But the deal flopped not only because the takeover target wasn’t looking friendly but, more importantly, because politicians in the UK, in particular, were looking pretty unfriendly. There were concerns that regulators in the UK and Europe might have been quite hostile, making for a protracted and possibly unsuccessful regulatory battle.
That hints at an interesting trend in global deal-making, where the latest two flops join a long list of failed deals. Thomson Reuters reports 87 deals worth $205bn have been withdrawn globally so far in 2017, compared with 111 deals with a combined value of $53.6bn at the same point in 2016.
The growing number and difficulty of the regulatory hoops companies have to jump through globally is almost certainly a factor in many of these. At a time when populist sentiment is rising and there is a retreat from globalisation in the advanced economies of the UK, US and Europe, politicians and regulators may not be looking on big conglomerates that favourably, especially when they seek to get even bigger.
That’s particularly the case in the financial services industry, where regulators have become ever more wary of the risk posed by getting too big and too global. But it’s the case in other industries, too, especially where there is the risk that jobs could be lost in one jurisdiction as a result of a merger that may shift them to another jurisdiction.
All this means there might be less work for the investment bankers, lawyers and other advisers who put these deals together. But it might mean, too, that even those companies that have not delivered value for their shareholders can become fat and complacent in the knowledge that they might avoid being takeover targets.