Top 10 Mergers and Acquisitions – Chemicals and
Pharmaceuticals Industry Gets the Knives Out
No. 1: Anheuser-Bush Inbev
acquires Sab Miller (status: The companies are agreeable, decision of the EU
competition authorities is still awaited): The to-date biggest merger in the
history of the sector will cost the Belgian company Anheuser-Bush (among other
things Budweiser and Beck's) approximately 107 billion dollars. The acquisition
will catapult the brewery giant to totally new dimensions, as in future every
third beer the world over will come from the cauldrons of the merging
companies.
Unlike in many other
deals, the acquisition of the world’s second biggest US brewery Sab Miller
(Pilsner Urquell and Foster's) by the leader of the sector Anheuser-Bush did
not face any major complications. To get the approval of the US competition
authorities, the two companies consented to the sale of Sab Miller shares to
the US Group Miller Coors. The premium for Miller Coors was received by brewer
Molson Coors. The approval of the EU competition authorities is still pending.
To make it easier for the competition watchdog to take a decision, Anheuser-Bush
want to severe their ties with other brands like Grolsch (Netherlands), Peroni
(Italy) or even Pilsner Urquell (Czech Republic).
In addition to other minor
sales activities in the US, Anheuser-Bush will also give up the China
activities of Sab Miller. China Resources Beer Holdings owns 49 percent shares
in Sab Miller amounting to 1.6 billion dollars. The Belgian company now expects
to get approval for the mega deal from the Chinese authorities too.
2. SHELL BG GROUP.The deal
made the headlines among other things, also because Shell is planning to
retrench a good 10,000 jobs in the two companies during the course of the oil
price reduction in 2015 and 2016. The group will save an extra three billion
dollars over and above the four billion dollars already saved in 2016.
n addition to the
development of new oil fields and higher margins at BG, Royal Dutch Shell wants
to promote the expansion of its fluid business through the merger. Extensive
gas deposits in (the US, Tanzania, Kazakhstan) as well a fifth of the global
fluid reserves are – from the perspective of Royal Dutch Shell – clinching
arguments.
No. 3: Charter
Communications acquires Time Warner Cable (status: completed): The
consolidation in the US cable market is surging ahead with giant steps. Charter
Communications owned by investor John Malone acquired its competitor Timer
Warner Cable for approx. 79.25 billion dollars. During the course of this
friendly acquisition, Charter Communications also acquired the smaller cable
vendor Bright House Networks for 10.4 billion dollars.
The acquisition will
create a new cable giant in the US market. With 24 million customers on the
whole, the new company is breathing down the neck of the market leader Comcast
which has 27 million customers. (icon)
The deal was rendered
possible only through the failed merger of Comcast and Time Warner Cable in the
years before. Comcast offered 55 billion dollars, but was unable to get the
approval of the US competition watchdog and finally withdrew from the deal.
No. 4: Dow Chemicals and
Dupont are merging (status: the two companies are agreeable, decision of the
regulatory authorities and approval of the shareholders still pending. The
merger is expected to take place in the second half of 2016): The jumbo merger
between Dow Chemicals and Dupont will cost around 68.6 billion dollars. The new
group will be called DowDuPont and it will challenge the status of the current
market leader BASF at least temporarily as the biggest chemicals company in the
world. According to the statement of both groups, the deal is a merger of
equals. The head office will remain in Midland, Michigan (Dow) as well as in
Wilmington, Delaware (Dupont).
he merger was on the rocks
for a long time because Ellen Kullmann, Chairman of the Board of Directors at
the US chemicals group Dupont was against such a deal. After a one-month
argument with the New York-based financial investor Nelson Peltz on the future
outlook of Dupont, Kullmann tendered his resignation towards the end of the
previous year. Different media organizations believe that the resignation was a
consequence of the current savings program and the correction of the profit
forecast for 2015. Peltz, along with his investment company Trian Fund
Management, is one of the principal shareholders of Dupont and a big
protagonist of the merger with Dow Chemical.
BASF will presumably not
have to give up its place under the sun as the biggest chemicals company in the
world for a long time. According to media reports, there are plans of dividing
the mega group into three independent companies: Agrarian chemicals- and seed
specialists, a materials class as well as a special chemicals producer.
As the sector portal
Downstream Today reports with reference to the press agency Bloomberg, the mega
merger will also result in the retrenchment of a good number of employees. On
the whole, Dupont will lay off every 10th of its 63,000 executives. It will hit
the Dupont location in the US state of Delaware particularly hard. Around 28 %
of the jobs (1700 executives) could be sacked and another 4400 employees will
lose their jobs in the US. Not much is known about the effects on the
international locations.
A report brought a lot of
excitement in early March. It said BASF was working out a counter offer for
Dupont. Experts however doubt the chances of success of such an offer. On the
one hand, Dow Chemical and Dupont supplement each other well, according to US
analyst Jeremy Redenius, and the synergies of the two US groups ought to be
bigger. On the other hand, BASF company head Kurt Bock has, during the course
of his tenure, tended to prefer moderate acquisitions only.
No. 5: Dell acquires EMC
(status: companies are agreeable, decision of the regulatory authorities in
some countries and the approval of the shareholders are still pending. The
merger is expected to take place in the second half of 2016): One of the
biggest acquisitions in the IT sector is the attempted acquisition of the
storage specialist EMC by computer manufacturer Dell. The deal is expected to
be finalized towards the middle of 2016 for a proud 67 billion dollars.
According to the calculations of market researchers, the merger will make Dell the
third largest PC manufacturer in the world (14 % market share). Dell is trying
to leverage the acquisition to become a hardware manufacturer specializing in
corporate solutions.
The share rates of
different technology companies have fallen drastically in the last few weeks
and months. This has endangered the acquisition at present. According to a
report in the New York Post, Dell is facing problems in raising 45 billion
dollars for the acquisition. Besides, the sale of Dell subsidiary Perot Systems
is turning out to be more problematic than expected. The French company Atos,
thus far the favorite buyer, is no longer willing to pay five billion dollars
and is pulling out of the deal as potential customer. Other prospects are Tata
from India and the Japanese IT service provider NTT Data.
No. 6: Bayer acquires Monsanto (status:
negotiations are on, initial offer was rejected): The Bayer-Chief Werner
Baumann, who has been in office for barely ten days, created a sensation of
sorts with his 62 billion dollars acquisition offer to the US seeds
manufacturer Monsanto on 10th May. If the deal comes through, it will be
biggest acquisition by a German company thus far. Monsanto Chief Hugh Grant was
in Leverkusen a week before the acquisition offer and had canvassed for a
merger between Monsanto and Bayer’s agrarian division. The response of Bayer
did not take long to materialize.
Pressure is increasing on the agrarian
chemicals sector. The tendency is towards full service provider, i.e., a
company that delivers seeds but can also guarantee pesticides. Of course,
Monsanto is currently the market leader among agro-chemical and seed vendors,
but it is beginning to face the threat of losing its place under the Sun.
Dupont and Dow want to merge with an estimated annual turnover of 18 billion
dollars in pesticides and seeds, and the merged company has the potential of
overtaking Monsanto just like the No. 2 company of the sector Syngenta. After
Monsanto came up with the offer of 47 billion dollars in the summer of 2015 for
the Swiss company, the Chinese government Group Chem China offered 43 billion
dollars for the company.
The negotiations have slowed down considerably
and both parties are responsible for this. Monsanto never visualized itself as
a “victim of acquisition” and wanted to acquire some or the other company
itself. In 2015 however, Monsanto failed to acquire the Swiss competitor
Syngenta. A merger of the No. 1 and No. 2 of the sector was considered hugely
problematic from the perspective of the Competition Law. The deal eventually
failed on account of the different visions of the two CEOs Hugh Grant
(Monsanto) and Mike Mack (Syngenta). Towards the beginning of 2016 Monsanto
then tried to persuade Bayer officials on the sale of its own agrarian
division. The response came very promptly from Bayer. To what extent the
management of Monsanto will be comfortable in playing the role of the hunted,
only the future will tell.
According to many experts, Bayer does not seem
to possess the right kind of negotiation strategy. To prevent higher offers
from competitors, Bayer deliberately kept the acquisition costs high at 62
billion Euro on the very first call. It is however customary in such
acquisition negotiations to reject the initial offer. Unfortunately, messages
were repeatedly leaked in the last few weeks, according to which there were
doubts about the financing, and the feeling gained ground that there was still
scope for hiking the price. For Monsanto, there is no sound reason to accept
the very reasonable initial offer. A hostile takeover by Bayer according to the
company’s current stand is out of the question.
The media was very critical about the deal.
Monsanto was perceived as a “symbol of the evil” among other things for its
weed destroying resource Glyphosat, but also because of its aggressive business
practices and its technically modified gene products. Environmentalists in
Germany and Europe have launched a sustained and systematic campaign and the
stock market too has reduced the share price of the company by a good 10 %
after the disclosure of the first offer. According to media reports, there are
internal differences in Bayer too. For example, Marijn Dekkers, Bayer Chief
Werner Baumann’s predecessor expressed his reservations on the acquisition,
predominantly for its effect on the value of the company share.
No. 7: Kraft Foods and Heinz are merging
(status: completed): Approx. 55 billion dollars is the cost of the deal crafted
by the US investor Warren Buffett between Kraft Foods and the ketchup manufacturer
Heinz. Media reports confirm the status of Heinz as leader in view of its 51%
shareholding after the merger. The new company will become the fifth largest
food group in the world with an estimated annual turnover of 30 billion
dollars. The Swiss Nestle Group will continue to be the undisputed market
leader with an annual turnover of 95 billion dollars.
No. 8: Anthem acquires Cigna (status: the
companies are agreeable, approval of the US Justice Department is still
pending): The merger wave did not spare even the insurance sector in 2015. The
US insurance company Anthem is acquiring the competitor Cigna for 54.2 billion
dollars and it will become the new market leader in this sector after the
merger. Besides, it will be the biggest acquisition in the history of insurance
companies worldwide. Up to the end of 2014 Anthem functioned under the
corporate name Wellpoint and is the largest member within the Blue Cross-Blue
Shield organization, an association of 36 US health insurance companies with more
than 106 million members.
The merger is a consequence of the US health reform Obamacare
under President Barack Obama. The two US insurance companies promise themselves
more negotiating power in price negotiations with hospitals and doctors.
Experts presume however, that the deal will not be very easy to conclude,
because Anthem and Cigna are only two of the total four service providers for
private health insurance for big undertakings.
No. 9: Chem China acquires Syngenta (status: companies are agreeable,
approval of the competent regulatory authorities however is still pending): A
lot is happening in the chemicals sector at present. In addition to the
attempted merger of Dupont and Dow Chemical as well as the acquisition of
Monsanto by Bayer, a third merger deal between Chem China and the Swiss
agrarian chemicals manufacturer Syngenta figure under the Top 10 merger deals
of the last 18 months. The Chinese government undertaking is offering 43
billion dollars (465 dollars per share). The Management Council of Syngenta
advised its shareholders to accept the offer unanimously. According to a press
release, the current management of Syngenta around CEO Michel Demaré (in the
picture of the shareholders meeting 2016) will continue to lead the Swiss company
after the merger.
If the deal actually materializes, the Chinese
market for pesticides and seeds could become a thorn in the flesh of other big
players e.g., Bayer, BASF and Monsanto in the future. At present the deal is
stuck on the approval of numerous regulatory authorities in the whole world.
The outcome is still open, the chances however are viewed more as positive by
Syngenta as well as by sector experts, because Chem China is a markedly smaller
agrarian chemicals company as compared to say Monsanto. The US company
attempted to acquire the Swiss company last year, but the attempt failed
eventually due to the spirited resistance put up by Syngenta CEO Michel Demaré.
The six biggest agro chemicals and seeds vendor
by turnover in billion dollars from 2015. Dupont and Dow are merging. Bayer is
acquiring Monsanto and Chem China is acquiring the Swiss Syngenta. Is BASF the
big loser in the market?
In Switzerland, the deal has been the subject
of considerable criticism in the domestic media. The sale of the country’s own
industrial substance is the subject of discussion. The nationalization of a
profit-making private company brings headaches. With the acquisition, Syngenta
will be delisted from the stock exchange and thus, disclosure obligations of
the new owner will stand waived.
No 10: Teva Pharmaceutical acquires Allergan
Generics (status: the companies are agreeable, but the decision of different
competition watchdogs is still pending): The Israeli pharmaceuticals Group will
spend around 40.5 billion dollars to acquire the Generika line of Allergan. The
EU commission has approved the deal under certain conditions. To avoid a very
high market concentration, both companies will have to sell a part of their
assets. For Allergan Generics, this means among other things, the business in
Great Britain and Ireland. Teva is popular in Germany as the parent group of
Ratiopharm.
At No. 11 and therefore missing the Top 10
positions by a whisker is the Berkshire Hathaway/Precision Castparts deal. The
investment company of the US billionaire wants to acquire the industrial group
Precision Castparts for 37.2 billion dollars. The deal is the only top deal of
the previous 18 months in which a company is being acquired not by another
company belonging to the same sector, but by a holding company. Berkshire
Hathaway is a conglomerate to which more than 90 companies belong.
Berkshire Hathaway is the owner of US companies
like the chemicals company Librizon, the fast food restaurant chain Dairy
Queen, the clothes brand Fruit of the Loom or also the jewelry chain Helzberg
Diamonds. Berkshire Hathaway also has a 26% stake in the food group Heinz. The
company also has other holdings in unknown quantities in financial service
providers American Express and Wells Fargo, in beverage manufacturer Coca Cola
and IT company IBM. By acquiring Precision Cast, Berkshire Hathaway is pursuing
its path of diversification consistently and the path of independence from the
insurance sector and stock picking. Buffet explained to the CNBC channel
“Elephant hunting will end in the coming 12 months”.
It could have been the mega deal of the last 18 months. Pfizer
acquires Allergan for 160 billion dollars and becomes the third largest
acquisition in history. Only the acquisition of Mannesmann by Vodafone for 180
billion dollars (1999/2000) and the merger of Time Warner with AOL for 165
billion dollars (2000) would have cost more.
Regarding mergers & acquisitions, Pfizer is
not a blank page. In 2000, the US pharmaceuticals manufacturer acquired its
competitor Warner-Lambert for 93 billion dollars. Pfizer paid 65 billion
dollars each to acquire the Swedish company Pharmacia (2002) and the US medicine
manufacturer Wyeth (2009).
By acquiring Allergan, Pfizer would have overtaken Novartis, the
Swiss medicine company hailed as the world’s biggest medicine manufacturer.
With an estimated annual turnover of 64 billion dollars, Pfizer would have been
placed much higher than the 58 billion dollar turnover Novartis in 2014.
The deal itself as well as the value of the
deal raised quite a few eyebrows worldwide and was assessed extremely
critically, especially in the US. On the one hand Pfizer was paying a remarkably
high price for a company the total annual turnover of which in business year
2014 was 13 billion dollars, and on the other hand, the acquisition would
enable Pfizer to relocate its head office to Dublin, the capital of Ireland for
taxation benefits. In the US, companies pay corporate tax of up to 36%, in
Dublin well below 20%. The deal was rejected by mutual consensus towards the
beginning of April due to a tightening of US taxation laws and the so-called
tax inversions resulting from it. Nevertheless, Pfizer must pay a penalty of
150 million dollars to Allergan. (icon)
In 2014 Pfizer created ripples with its attempt
at hostile acquisition of the British pharmaceutical company Astra Zeneca. But
the deal failed due to the stiff resistance offered by the company. Although
the offer was revised twice from the original 99 billion dollars to 106 billion
dollars, and finally to 117 billion dollars, Astra Zeneca rejected the offer
with the argument that its assets were still undervalued. Pfizer was also criticized
by British politicians and scientists. The Americans were interested in the
acquisition only to gain tax advantages in Great Britain and to make savings.
Investors of Astra Zeneca earlier demanded a return to the negotiating table.
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