U.S. stocks not moved by
October's marquee deals
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[November 01, 2016]
By Lauren Hirsch and Noel Randewich
(Reuters) -
The
record dealmaking volume for October did not create a ripple effect
lifting U.S. stocks as it has in the past – partly because the mergers,
albeit large, were few and far between, bankers and analysts said.
Though acquisitive corporate bosses generated $329 billion worth of
takeovers in October, the biggest month for U.S. M&A on record,
according to Thomson Reuters data, the 615 deals that were announced
marked the lowest number of monthly deals since March, 2013. The top
four deals alone represented over one half the month's total.
The sparsity of deals indicates that while confidence may be running
high in board rooms at a handful of large companies, it is not
necessarily widespread across corporate America. As such, the stock
market's 1.9 percent drop in October, as measured by the S&P 500 index,
was more of a thud than a rallying roar.
"It should be bullish, because it's a sign that companies see value in
other companies, but it hasn't helped," said Donald Selkin, chief market
strategist at National Securities in New York. "People feel that there's
not as much value in these stocks as there might have been."
The deals also lack a common or new motivation that would inspire
investors to gobble up stocks in anticipation of more mergers, bankers
said.
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While there is some ambition to get transactions done before the U.S.
Federal Reserve makes financing more expensive by raising interest
rates, people involved with M&A say that was not a primary factor in
October. The presidential election, just over a week away, also did not
appear to be a driver.
But the autumn merger boom does reflect a less alluring reality: the
summer was uncertain as CEOs put off deals they might have done sooner.
Third-quarter M&A in the U.S. accounted for just 24 percent of total
year-to-date M&A, the lowest percentage since 2007.
Britain's Brexit vote in June to leave the European Union kicked off a
spate of market volatility. Although Brexit fueled some deals in October
because the British pound had lost so much value, it stymied activity
until recently.
"In the summer, the dealmakers in the U.S. took a collective breather,"
said John Reiss, global head of M&A at law firm White & Case.
DEALS ACROSS THE BOARD
October's megadeals were spread out among many sectors.
The biggest for the month, as well as 2016 to date, was telecom giant
AT&T Inc's proposed $85.4 billion acquisition of content creator Time
Warner Inc. Qualcomm's $38 billion purchase of NXP Semiconductors NV
also set a record for the semiconductor sector.
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![](../images/110116pics/busine41.jpg)
An AT&T logo and communication equipment is shown on a building in
downtown Los Angeles, California October 29, 2014. REUTERS/Mike
Blake/File Photo
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There were also large deals announced between cigarette makers, asset
managers, and oil-and-gas producers. Healthcare stood out as a sector
without big deals.
All told, there were 10 deals larger than $5 billion in October, and the
average deal size was $535 million – the highest since July 2015, when
it was $329 million.
Bankers, lawyers and executives involved with the October flurry
described a range of rationales.
For instance, British American Tobacco's $47 billion offer to buy U.S.
tobacco firm Reynolds American Inc was driven by the drop in sterling.
General Electric Co's decision to merge its oil and gas business with
Baker Hughes Inc reflects its ongoing divestiture of peripheral
businesses.
And while the AT&T-Time Warner tie-up happened in October, it was driven
by a years-long disruption in technology, media and telecom businesses
that has led those types of companies to combine.
"At the end of the summer, there were a lot of things going on in the
world: there was discussion around interest rates, concern over Brexit,
uncertainty over where the economy was headed," said Steve Arcano, who
concentrates on M&A as a partner at law firm Skadden, Arps, Slate,
Meagher & Flom.
"My sense is that over the course of September people felt they had a
better read on all of that, reengaged and started pushing forward
again."
(Reporting by Lauren Hirsch in New York and Noel Randwich in San
Francisco; Editing by Lauren Tara LaCapra, Bernard Orr)
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