Postmortem: Nearly as Many Cancelled Mergers as New Ones

Deal Journal - WSJ.com - December 1, 2008, 10:51 am
Postmortem: Nearly as Many Cancelled Mergers as New Ones
Posted by Heidi N. Moore
Deal Journal readers, welcome back from the Thanksgiving weekend. Let us catch you up on things in the deal world.
Monday’s disheartening statistic du jour comes from Thomson Reuters, which totted up the effect of last week’s abandoned $188 billion offer for Rio Tinto by BHP Billiton. (Deal Journal puts the acquisition price of that deal at $66 billion, but Thomson Reuters includes in the price the Rio Tinto debt BHP would have assumed in a deal as well as the value under the original share price.)
By that counting, the collapse of the BHP-Rio Tinto deal pushed the seesaw of merger volume to a rarely-seen balance: the value of busted mergers in the fourth quarter is nearly equal to the value of the mergers that were signed.
According to Thomson Reuters data, there have been $322 billion of withdrawn M&A deals in the fourth quarter, compared with $362 billion of announced deals. For every 100 mergers or acquisitions announced in the fourth quarter, seven were called off.
It probably won’t stop there. There are some gigantic proposed deals still very much on the wire. The squeeze in the credit markets has made it highly unlikely that Swiss pharmaceuticals giant Roche Holding will find banks willing to underwrite the $45 billion loan it needs to buy the majority of Genentech it doesn’t already own. The $42 billion takeover of BCE may be scuttled by an accounting firm’s preliminary opinion that the parent of Bell Canada wouldn’t be solvent after the deal.
Investment banks are already awash in losses and will dearly miss the accompanying lost merger fees. The BHP-Rio deal alone would have meant $304 million in fees spread out across a coterie of 16 banks including UBS, BNP Paribas, Goldman Sachs Group, Gresham Partners, Lazard, HSBC Holdings, Merrill Lynch and Citigroup, Rothschild, Deutsche Bank, Macquarie Group, Societe Generale, Morgan Stanley, JP Morgan Cazenove, Credit Suisse Group and Royal Bank of Scotland Group.
Of course, what the banks lose in merger fees on busted deals they often gain in peace of mind. A dead deal, after all, means that the banks don’t have to underwrite tens of billions of dollars of loans for which there are few buyers.