Market analysts predict a rise in $100 billion dollar deals in 2016. With this rise, we can also anticipate various lawsuits and legal violations involving mega-mergers and similar transactions. In 2015, 13% of federal securities class action litigation suits involved M&A transactions. This is a rise from 9% in 2014. As we continue on into Q2, we are already seeing significant M&A activity emerging.
Continued Enforcement by the U.S. Justice Department
The U.S. Justice Department continues to play an integral role in regulating merger transactions. Recently, a proposed $28 billion merger between oil giants Halliburton and Baker Hughes was terminated due to legal antitrust hurdles. The Justice Department filed a lawsuit to stop the merger, stating that the transaction would leave only 2 dominant suppliers, and would result in increased industry prices.
Halliburton Chief Executive Dave Lesar cited challenges in obtaining regulatory approvals as well as general industry conditions as the main reasons for terminating the deal. Halliburton is to pay Baker a $3.5 billion fee for the deal breakup. The Justice Department has filed a high number of lawsuits to stop merger deals in the past 18 months.
Service & Tech Mergers
One merger that is going through, however, is the Alaska Airlines-Virgin America Merger. Unlike the Halliburton-Baker deal, Alaska Airlines is set to acquire Virgin America as they have beat out rival bidders like JetBlue Airways Corp. The Alaska-Virgin deal is set to close by Jan. 1, 2017, with Alaska offering $57/share.
This deal illustrates the importance of balancing corporate interests with traditional customer preferences. For instance, Virgin patrons are used to amenities such as faster Wi-Fi, touch-screen snack orders, and a more modern, lounge-like feel to their flights. On the other hand, Alaska Airlines customers are loyal to their company due to friendly interaction with staff and reliable flights. It will be interesting to see whether Alaska will adopt the culture and feel of Virgin’s flight style.
Another major deal that involves combining two distinct customer bases is Global Eagle Entertainment (GEE)’s acquisition of EMC. GEE is an in-flight entertainment and connectivity provider (IFEC), while GEE focuses on satellite connectivity. GEE CEO Dave Davis says the company wants to take existing GEE’s capabilities and distribution rights in the entertainment industry and sell them across EMC’s network. A combination of the companies would create new ways for customers to monetize investments, and would also eliminate duplicative resources.
Abbott announced an agreement to acquire St. Jude Medical. This merger will create leadership in the high-growth cardiovascular markets. The two companies have a combined annual sales of $8.7 billion. St. Jude Medical has a net debt of about $5.7 billion, which will be assumed by Abbott. It is unclear whether any spin-off deals are being planned by Abbott.
The consolidation reflects the federal government’s efforts to reward hospitals that focus on higher quality standards of treatment, rather than quantitative factors. An example of this is the increased use of bundled payments rather than individual fee service payments. Thus, mergers like the Abbott-St.Jude deal demonstrate how mergers interact with current trends in the industry and in government regulation.
In other healthcare merger news, Medivation, Inc. recently announced that it rejected an acquisition proposal from Sanofi. Medivation’s board of directors determined that the proposal undervalues Medivation and does not reflect the company’s best interests (Sanofi had offered at $52.50 per share in cash). The board also asserted that the acquisition would benefit Sanofi, rather than Medivation shareholders.
Themes and Takeaways
Some common themes and takeaways with these recent mergers include:
- Building off of old, existing technologies and services to create new products that cater to younger customer demographics
- Continued struggle with decaying markets such as the oil market
- Anticipating issues associated with the amalgamation of distinct customer bases
- Adaptation to government policies and new industry trends
- Continued involvement by the Justice Department in enforcing U.S. antitrust laws through the filing of lawsuits
Mergers and acquisitions provide distinct moments where shareholders and companies can increase their value. However, they may also bring to light violations of the law and abuse of shareholder rights. If you have any inquiries or concerns regarding a merger and acquisition issue, contact us today at Kessler Topaz. We work closely with shareholders to provide strong, effective representation in cases involving unfairness or abuse in a transaction.