Mergers/Acquisitions

Cardinal Health to buy Medtronic units in $6.1bn deal

BY Richard Summerfield

US drug distributor Cardinal Health Inc has agreed to acquire Medtronic PLC’s patient monitoring and recovery unit for $6.1bn in cash. However, reaction to the acquisition has been far from positive, with Cardinal’s share price plummeting in the aftermath of the deal announcement.

According to a statement announcing the deal, Cardinal will fund the acquisition with $4.5bn of new debt and existing cash. The deal structure has proved unpopular, however. Indeed, Fitch Ratings has raised concerns over Cardinal’s debt and, as a result, lowered its outlook on the healthcare services company. In total, Cardinal’s share price fell 13 percent to $71.40.

On the Medtronic side of the transaction, the company is making moves to shed a number of assets in light of its $50bn acquisition of Irish healthcare product manufacturer Covidien in 2015, in a so-called ‘inversion’ deal.

Cardinal will acquire Medtronic’s patient care, deep vein thrombosis and nutritional insufficiency units which will include 23 product categories in total, encompassing multiple market settings, including brands such as Curity, Kendall, Dover, Argyle and Kangaroo.

“Given the current trends in healthcare, including aging demographics and a focus on post-acute care, this industry-leading portfolio will help us further expand our scope in the operating room, in long-term care facilities and in home healthcare, reaching customers across the entire continuum of care,” said Cardinal's chief executive, George S. Barrett, in a statement.

"This is a positive transaction for all involved - Medtronic, Cardinal Health, and our respective shareholders and employees - who we believe will all thrive under this change in ownership. In addition, it signifies our commitment to disciplined portfolio management," said Omar Ishrak, Medtronic's chairman and chief executive officer.

He continued: "Medtronic has had a specific focus over the past several years on ensuring that we are delivering compelling clinical and economic value to health systems and patients around the world. Ultimately, we came to the conclusion that these products - while truly meaningful to patients in need - are best suited under ownership that can provide the investment and focus that these businesses require. At the same time, we can put these proceeds to work, investing over the long-term in higher returning internal and external opportunities that are more directly aligned with our growth strategies of therapy innovation, globalisation, and economic value."

The deal is expected to close in the second quarter of Medtronic's fiscal year 2018, subject to receipt of customary regulatory approvals and satisfaction of other customary closing conditions.

News: Cardinal Health's dull forecast drags rivals' shares despite Medtronic buy

Global dealmaking remains “resilient”, says new Q1 report

BY James Williams

Global dealmaking remains “resilient” in the face of an uncertain year, according to Mergermarket’s new ‘Global and regional M&A: Q1 2017’ report, which reveals a year-on-year increase in deal value of 8.9 percent.

The report, which confirms that global business making remains buoyant despite the prospect of an uncertain 12 months, shows that consumer mega-deals reached a record value during Q1, with 395 deals worth $136.1bn agreed.

“The consumer sector stole the limelight in Q1, with a record three deals over $10bn,” said Katharine Dennys, research editor at Mergermarket. “Deals such as BAT/Reynolds, Luxottica Group/Essilor International and Mead Johnson/Reckitt Benckinser caused Q1 value to account for almost two-thirds of total 2016 consumer activity.”

The report also states that, due to stricter regulations being imposed on transactions, Chinese dealmakers had a ‘reversal of fortunes’ in terms of their outbound investment, with the 96 deals worth $82bn in Q1 2016 reduced to 75 deals worth $11.8bn, an 85.6 percent drop in value. “Coupled with increased protectionism from the US and UK, this may signal the end of China’s outbound acquisition spree, at least in the short-term”, suggests Ms Dennys.

Due to the UK’s exit from the European Union, political uncertainty appears to have discouraged international dealmakers from pursuing transactions in the region. Despite this, US dealmakers had a strong quarter investing in the continent, with 150 deals worth $55.7bn – a 16 percent uptick in value compared to Q1 2016 (176 deals worth $48bn) and the strongest Q1 deal value posting since 2008 (138 deals worth $112.6bn).

Uncertainty throughout Europe has also seen inbound investments take a hit, with the report noting that value was reduced to 55.7 percent in comparison to Q4 2016. Furthermore, against a backdrop of Brexit negotiations and upcoming elections in France and Germany, Q1 saw 262 deals worth $71.7bn – the slowest by value since 2014 (291 deals worth $55.8bn).

Ms Dennys concluded: “There is evidence to suggest that dealmakers are seeing deals as more precious, with larger sums being invested in fewer deals. This is reflected in the average size of disclosed value deals reaching its highest Q1 level on Mergermarket record.” 

Report: Global and regional M&A: Q1 2017

$13.3bn “transformational event” sees ConocoPhillips asset sale to Cenovus

BY Fraser Tennant

In what has been described as a “truly transformational event”, Canadian oil company Cenovus Energy Inc. has agreed to the £13.3bn acquisition of the 50 percent interest held by multinational energy corporation ConocoPhillips in the Foster Creek Christina Lake (FCCL) Partnership – the companies’ jointly owned oil sands venture operated by Cenovus.

Once complete, the transaction, which also includes the majority of ConocoPhillips’s western Canada Deep Basin gas assets, will immediately make Cenovus Canada’s largest thermal oil sands producer and one of the country’s largest oil and gas producers.

“This is a significant, win-win opportunity for ConocoPhillips and Cenovus,” said ConocoPhillips chairman and chief executive Ryan Lance. “ConocoPhillips Canada will now focus exclusively on our Surmont oil sands and the liquids-rich Blueberry-Montney unconventional asset. Cenovus will assume sole ownership of FCCL and assume operations in the Deep Basin assets. This is truly a transformational event for both companies.”

With operations and activities in 17 countries, $90bn of total assets and approximately 13,300 employees, ConocoPhillips is the world's largest independent exploration and production company based on production and proved reserves. The transaction is expected to make an immediate and significant impact on ConocoPhillip’s value proposition by allowing it to rapidly reduce debt to $20bn and double share repurchase authorisation to $6bn.

“This means we will not only accelerate, but exceed, the three-year plan we laid out in November 2016,” continued Mr Lance. “The transaction is accretive to our cash margins and lowers the average cost of supply of our portfolio, with no impact to our estimate of cash provided by operating activities at $50 per barrel Brent price. We will retain upside to future oil price increases through our equity stake in Cenovus and an uncapped, five-year contingent payment.”

With a continued focus on total shareholder return, Cenovus intends to consider the optimal level of its dividend once the company’s divestiture of non-core assets is substantially complete – taking into account future production growth, realised cost reductions and sustained margin improvements.

“This transformational acquisition allows us to take full control of our best-in-class oil sands projects and to add a second growth platform across the prolific Deep Basin that provides complementary short-cycle development opportunities,” said Brian Ferguson, president and chief executive of Cenovus. “The purchase of these assets is consistent with Cenovus’s existing strategy and core and I am confident this transaction will create substantial shareholder value for years to come.”

News: ConocoPhillips sells oil and gas assets to Cenovus for $13.3 billion

Dow and DuPont win EU regulatory approval

BY Richard Summerfield

The controversial $130bn ‘merger of equals’ between Dow Chemical and DuPont finally won approval from the European Union (EU) yesterday as they agreed to divest certain assets in order to get the deal done.

The combined company, which will be known as DowDuPont following the proposed merger, will split into three independent companies within two years of completion. The three businesses will focus on agriculture, materials and speciality products.

"We always look at what a merger would change not just today but also tomorrow," EU Competition Commissioner Margrethe Vestager told reporters at a Brussels press conference announcing the approval. "It is just as important to make sure mergers don’t reduce innovation for new and better products."

In a statement following the approval, Dow and DuPont said: “Longer term, the intended three-way split is expected to unlock even greater value for shareholders and customers and more opportunity for employees as each company will be a leader in attractive segments where global challenges are driving demand for their distinctive offerings."

DuPont has agreed to sell off its crop protection business, along with its associated research and development division. Dow has agreed to divest its acid copolymers and ionomers business.

According to Ms Vestager, the choice of buyer for the companies’ assets was up to Dow and DuPont, however, a potential purchaser would need to have the necessary resources to make the new business viable without triggering new antitrust concerns.

EU antitrust authorities were initially reluctant to approve the deal as they were concerned that competition and innovation in the European agriculture industry would be negatively impacted.

Though the EU’s approval is an important step in the approval process, the deal is still being examined by antitrust bodies in the US, Canada and Brazil. "The companies continue to work constructively with regulators in the remaining relevant jurisdictions to obtain clearance for the merger, which they are confident will be achieved," the Dow and DuPont statement continued.

News: EU antitrust regulators clear $130 billion Dow, DuPont merger

Global deal volume reaches $705bn

BY Richard Summerfield

Global mergers & acquisitions activity has been on the up, according to Dealogic, with consecutive year-on-year increases for the last four years. And 2017 may prove to be even busier. There have been $705bn worth of deals announced in the year to date, marking the first time since the onset of the financial crisis that the $700bn mark had been surpassed in same YTD period.

One of the major forces driving activity has been firms pursuing cross-border deals. Such transactions reached $288.4bn in 2017 YTD, up from $144.9bn in 2012 and the highest YTD level since the $324.7bn recorded in 2007. The US accounted for $95.8bn worth of overseas acquisitions, the highest YTD level on record. The $31.4bn offer for Swiss biotech company Actelion by American healthcare group Johnson & Johnson is the largest announced deal o date.

From a sectoral perspective, the oil & gas industry saw the most activity, with a record $96.7bn worth of announced deals to date. Of this total, $52.4bn and $9.4bn occurred in the domestic sectors of the US and Canada respectively.

The second most targeted industry was the healthcare sector, with $95.9bn,and technology was third with $87.1bn.

Morgan Stanley topped the adviser rankings in the YTD. Though the firm’s share of total deals fell from 22.0 percent to 20.2 percent, it was involved in $142.7bn of deals, far outstripping Bank of America Merrill Lynch, which had an 18.5 percent share – up from 14.4 percent in 2016 – and a total deal value of $130.3bn. Citi Bank advised on 17.6 percent of transactions YTD, up from 13.2 percent in 2016 for a total value of $123.9bn. Goldman Sachs, which topped the global advisory rankings this time last year, suffered the most in the early part of 2017. Last year the firm advised on nearly a third of deals; this year, however, it fell to fourth place, with its share of deals nearly halved to 16.7 percent, having been engaged on $118.2bn of transactions in the YTD.

Report: Dealogic M&A StatShot

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