2014: The Year of Merger Mania

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2014: The Year of Merger Mania
| published June 24, 2014 |

By Thursday Review staff

It’s been about seven years since the last M&A binge, but the merger itch is back. And this year the need for big corporations to scratch that itch has reached an all-time high.

The year had barely started—and indeed, Americans in at least 45 states were deeply frozen—when news of Comcast’s huge merger to cable giant Time Warner was announced. When Comcast CEO Brian Roberts explained the $45.2 billion deal to reporters in February, it was already the largest merger in history. If finally approved and completed later this year, it would wed the two biggest providers of cable, phone and internet, and put—by some estimates—35% of U.S. households within the Comcast ecosystem.

But then came the AT&T marriage to DirecTV, as large in terms of value as the Comcast deal, and an obvious retort by two other communications giants seeking to remain relevant and competitive in the delivery of content. Both sets of partners told regulators and Congress basically the same thing: competition from a variety of aggressive and technologically fluid content providers—Google, Amazon, Apple, Aereo—means that traditional, even antiquated, views of “monopoly” no longer apply. Each set of participants will likely win the day with regulators and with Congress, in part because of masterful lobbying efforts, and in part because some in Washington agree that the new tech giants pose their own, potentially more pervasive threat to competition.

General Electric has joined the Society of Big Mergers with its recent proposal to buy the energy components of Alstom, a French industrial and energy conglomerate, but only after the French government bought its own stake in the company from a previous shareholder, Bouygues. The French government will own about 20%, but GE will hold the majority stake. GE will pay Alstom shareholders between $8 billion and $10 billion, give or take a billion and pending the final tally of assets. Among other products, Alstom manufactures parts for nuclear reactors, oil well heads, precision military hardware, and turbines.

Then there was that big West Coast-East Coast marriage. Just weeks ago Oracle announced its intention to purchase Micros Systems for an estimated $5.3 billion. The Redwood City, California-based Oracle wanted the Maryland-based maker of retail and restaurant software and applications in their team, and it was willing to shell out the cash to make that happen. Micros has been a developer of software for restaurants and hotels for decades, and has expanded neatly into sports and musical performance venues, resorts and spas, government agencies, cruise ships, and even theme parks. Micros Systems was Oracle’s biggest acquisition since it purchased Sun Microsystems for $5.6 billion four years ago.

And Verizon recently finally resolved its complex arrangements with Vodafone, in essence liberating some European operations but largely folding others under the Verizon label. The Verizon-Vodafone deal is too complicated to explain here, but we refer you to Earl Perkins’ examination of the ups and downs of that arrangement in his May 20 article (Mega Mergers Lead to More Unemployment; Thursday Review).

And this week Wisconsin Energy agreed to pay $5.7 billion for Integrys Energy. The deal would merge two of the largest Midwestern energy firms into one giant, and the newly created behemoth would serve 4.3 million customers spread out across several states, including Illinois, Michigan, Minnesota and WE’s home of Wisconsin. The merged corporation will shed it former names and become WEC Energy. Both companies had previously acquired dozens of other energy firms—oil and gas producers, electric transmission groups, and pipeline construction firms—prior to arriving at this merger. Integrys is based in Chicago, and Wisconsin Energy is based in Milwaukee. The new company will maintain operations centers in Green Bay, Milwaukee and Chicago.

Then there was the much-talked-about deal between Facebook and WhatsApp, a $16 billion deal that folded WhatsApp’s alternative texting tools and apps into Facebook’s multi-billion dollar empire. Many computer and tech industry analysts say that Facebook paid too much for simple control of an app, considering WhatsApp’s tiny workforce and relatively small assets. Still, Mr. Zuckerberg was not to be outdone by a little startup with an app not under his dominion, and $16 billion—some have joked—may be chump change for Facebook.

Even clothing stores got in on the action, as Jos. A. Bank agreed to buy Eddie Bauer—this after many months of open speculation and rumor-mongering about a Men’s Wearhouse deal. Jos. A Bank shelled out a hefty $825 million for Eddie Bauer, small change, perhaps, when compared to the big communications and cable mergers, but substantial among the high end men’s clothing makers. Jos. A. Bank will buy Eddie Bauer directly from Eddie B’s parent company, Everest Holdings. Everest Holdings, which also invests in land, hotels, apartments and commercial real estate, is based in Scottsdale, Arizona.

All told, these and another dozen major mergers have made 2014 the biggest year for acquisitions and mergers in history, and a good way to top 2007, the last year we saw this much itch to merge.

Related Thursday Review articles:

Mega Mergers Lead to More Unemployed; Earl Perkins; Thursday Review; May 20, 2014.

Do Recent Cable Mergers Signal Worse Customer Satisfaction?; Thursday Review; May 20, 2014.