Comcast abandons $45bn mega merger

BY Richard Summerfield

It was supposed to close at the end of 2014, and was the key cog in the rapidly consolidating US television market, yet the $45bn merger between telecommunications giants Time Warner Cable and Comcast was cancelled in late April, citing rapidly mounting regulatory concerns.

The deal, originally announced in February 2014, would have formed a cable and broadband juggernaut, combining the two largest US companies in the space. The merged entity would have controlled 57 percent of the US broadband market and just under 30 percent of pay television service. Accordingly, from the outset there was speculation that the deal would attract the attention of antitrust authorities in the US.

Publicly,  both firms were confident that the deal would go ahead, and gave assurances that competition in the US would remain largely unaffected. Comcast argued that the companies served different enough markets that customers would not notice a drop in competition. The firm also agreed to spin off some Time Warner Cable subscribers to keep its share of the US cable TV market below 30 percent.

Yet despite Comcast’s protestations, the longer the deal dragged on, the louder the voices of dissent became. A month following the announcement of the transaction, the Department of Justice launched an investigation into the deal. The proposed merger also attracted the ire of a number of politicians and consumer groups. By mid April, both the Justice Department and the Federal Communications Commission indicated that they would move to block the deal should Comcast continue to pursue the transaction. In light of the mounting regulatory opposition, Comcast decided to walk away. "Today, we move on," noted Brian Roberts, Comcast's chief executive, in a statement. "Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn't agree, we could walk away."

Following the withdrawal of the bid, FCC chair Tom Wheeler said the deal would have threatened the emerging ‘over the top’ and streaming services which are changing the nature of consumers’ interaction with media and entertainment. Mr Wheeler stated that "Comcast and Time Warner Cable's decision to end Comcast's proposed acquisition of Time Warner Cable is in the best interests of consumers. The proposed transaction would have created a company with the most broadband and video subscribers in the nation alongside the ownership of significant programming interests.”

The collapse of the deal will have an impact on the wider communications sector. Regional cable operator Charter Communications Inc was due to acquire a number of Time Warner Cable markets which Comcast was planning to divest following the closure. Charter also has a $10.4bn deal for Bright House Networks in place which was reliant on the completion of the Comcast deal. Whether those deals go ahead now remains to be seen, however Time Warner is believed to be open to a potential merger with Charter, two years after the smaller firm launched an unsolicited and acrimonious $37.3bn bid for Time Warner.

News: Comcast drops Time Warner Cable bid after antitrust pressure

Global M&A growth on course to hit five-year high

By Fraser Tennant

Growth in the worldwide mergers and acquisitions (M&A) market is set to hit its highest level in five years, according to EY’s 12th Global Capital Confidence Barometer.

The Barometer, a biannual survey of more than 1600 executives in 54 countries, suggests that the appetite for acquisitions in the market is healthy at present, with 56 percent of global companies intending to acquire in the next 12 months.

EY’s Barometer paints a picture of an already potent market poised to expand further with: (i) global deal value already up 13 percent on 2014; (ii) the number of deals currently in the pipeline up 19 percent on 12 months ago; (iii) 84 percent of firms planning deals abroad; (iv) three-quarters of firms (73 percent) seeking ‘innovative M&A’ deals; and (v) almost half of companies (47 percent) stating that they intend  to complete more deals over the next 12 months than they did in the preceding year.

The UK, China, the US, Germany and Australia are likely to be the top five destinations of choice for investors, according to the Barometer and, in terms of buyers, the US, South Korea, UK, France, Germany and Japan will be the most prominent acquirers. Furthermore, the sectors with the highest level of acquisitive intent are expected to be technology, automotive, consumer products, diversified industrials and financial services.

“The appetite for deals is at a five-year high," says Pip McCrostie, EY’s global vice chair for Transaction Advisory Services. “The Barometer reveals three reasons for the sharp increase in deal making intentions. First, economic divergence fuelled by commodity and currency fluctuations is accelerating cross-border M&A. Second, disruptive innovation is driving inorganic growth strategies at every level of enterprise. Finally, we will see the impact of new entrants and companies returning to the deal market after a hiatus.”

The Barometer also suggests that new buyers will be the ones driving dealmaking activity in 2015, following a period of relative inactivity caused by the recent M&A downturn. “M&A turned a corner in 2014 with deals once again being seen as a route to growth," claims Ms McCrostie. “2015 will see a surge of new entrants and companies returning to the M&A market to generate future growth.”

Report: Global Capital Confidence Barometer-Innovation, complexity and disruption define the new M&A market

Charter to acquire Bright House in $10bn deal

BY Richard Summerfield

The consolidation of the pay television sector shows no signs of abating after Charter Communications Inc announced that it had agreed to acquire privately held cable operator Bright House Networks LLC in a deal worth around $10.4bn.

“Bright House Networks provides Charter with important operating, financial and tax benefits, as well as strategic flexibility,” said Charter’s chief executive Tom Rutledge, in a statement announcing the transaction. Once the deal has been completed the acquisition of Bright House will make Charter the second largest cable television provider in the US.

However, deal closure is contingent on a number of factors outside the control of the merging companies. In order for the deal to proceed, Comcast’s proposed $45bn acquisition of Time Warner Cable must win regulatory approval. Under the terms of that deal, Charter has agreed to pay approximately $7.3bn in cash for 1.4 million Time Warner Cable customers and to swap another 1.6 million customers with Comcast. However, if regulators block the Comcast/Time Warner deal, the agreement to sell subscribers to Charter would be in jeopardy, as would the planned Charter takeover of Bright House.

Should Charter’s acquisition of Bright House win regulatory approval, Charter will retain around 73.7 percent of the newly merged company, while Bright House’s owner, Advance Newhouse,  will hold the remaining stock. Advance Newhouse will receive around $2bn in cash and the rest in common and convertible preferred units of the new company.

The deal would revitalise Charter, which has suffered of late from consumers ‘cutting the cord’ and turning away from traditional cable television services and embracing streaming services provided by Netflix and Amazon Prime. Indeed, in 2014 pay television subscriptions in the US declined by around by 129,000.

News: Charter beefs up cable muscle with Bright House deal

Shell agrees to buy BG Group in $70bn deal

BY Fraser Tennant

In a major deal likely to be one of the largest undertaken in 2015, Royal Dutch Shell and the BG Group, the UK’s third-largest energy company, have reached an agreement which will see Shell buy the oil and gas exploration giant in a $70bn deal.

Once complete, the deal, a cash and shares offer which will see investors gain a 50 percent premium on BG’s share price, has the potential to create a company worth almost $300bn.

According to Shell’s summary terms and metrics, the deal: (i) represents a value per BG ordinary share of 1350p, a premium of 52 percent; (ii) values BG equity at $70bn; (iii) will see BG shareholders own 19 percent of Shell; (iv) is a transaction underpinned by intrinsic asset value of BG; (v) is mildly accretive to earnings per share in 2017 and strongly accretive from 2018; and (vi) is accretive to cash flow from operations per share from 2016.

“This is an important transaction for Shell, accelerating the delivery of our strategy for shareholders," said Jorma Ollila, chairman of Shell. “The result will be a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world. We believe that the combination is in the interests of both our companies and their shareholders.”

Commenting on the deal, BG chief executive Helge Lund said: “The offer from Shell delivers attractive returns to shareholders and has strong strategic logic. The consolidated business will be strongly placed to develop the growth projects in BG’s portfolio. The transaction will take time to complete, during which my team and I will remain committed to BG and our shareholders, and to safely delivering our 2015 business plan.”

Despite Mr Lund’s commitment, the BG chief, who joined the firm as recently as February 2015 amidst controversy over his $35m-plus pay package, will “probably move along” from his position if the deal goes ahead according to Shell’s chief executive, Ben van Beurden. 

The Shell/BG Group deal is expected to be concluded in early 2016 following regulatory and shareholder approvals, to be followed by a $25bn share buyback program commencing in 2017.

News: Shell offers 50 percent premium to buy BG for 47 billion

M&A booms in Q1 2015

BY Richard Summerfield

2014 was a notable year for global mergers and acquisitions (M&A) activity, with deal volumes and valuations reaching pre-crisis highs in some regions. This  boom continued into the first quarter of the year, according to data released by Dealogic.

In the first three months of 2015, $902.2bn worth of M&A activity was announced - the highest first quarter total since the $1.08 trillion worth of deals announced eight years ago.

The 14 megadeals – each valued in excess of $10bn – accounted for a significant amount of  announced transactions in Q1, worth a combined $267.4bn. It was the busiest Q1 for megadeals since  15 deals were announced in the first quarter of 2006.

Cross-border M&A also performed well, reaching $315.2bn - the highest first quarter volume since 2007 when activity reached $357.9bn.

The healthcare sector was the most targeted industry, with deal value of $126.5bn. The real estate space was the second most targeted industry last year with $113bn worth of announced deals  across 462 transactions, a leap of 38 percent from Q1 last year.

US targeted M&A climbed 28 percent, with a total of $415bn, up from $324.6bn. This was the highest first quarter total since 2007 when $430.7bn worth of deals were announced.

In Europe, seven of the region’s top 10 sectors saw a year on year increases in volume in the first quarter. In the construction sector, activity climbed to $11.7bn - a more than threefold increase on Q1 2014, which saw just $3.2bn worth of deals.

Report: Dealogic Global M&A Review First Quarter 2015