The Economist :
PFIZENECA? Pubnicom? Holfarge? Finding a suitable name for a fusion of well-known brands is among the challenges of big takeovers. It is one that investment bankers are once again pondering: after years in the doldrums, big mergers and acquisitions (M&A) are making a comeback. Optimists hope this is a sign of bosses daring to be bold because of improving economic prospects. Sceptics wonder if the managers are in fact doing deals to conceal a worrying lack of growth opportunities-or just cutting costs by merging with companies in kinder tax jurisdictions.
Whatever the reason, one hopes that Pfizer and AstraZeneca, two drugmakers, Holcim and Lafarge, cement companies, and Publicis and Omnicom, advertising firms, will settle on snazzier names if their proposed unions do indeed take place. Among other big deals (see table), GE and Siemens are both bidding for Alstom, a French industrial rival. There have been 15 transactions each worth more than $10 billion so far this year, the most since the record M&A rush of 2007. Taking in smaller deals, mergers are up nearly 50% on last year (see chart). And still they keep coming: on May 1st the Wall Street Journal reported that AT&T had approached DirecTV about a possible bid worth more than $40 billion.
Yet even investment bankers, who are salivating at the prospect of the fees they may earn, are not sure if this spike is the real deal. A year ago, many interpreted the buy-outs of Dell and Heinz, purveyors of computers and ketchup respectively, to be the start of a new wave of transactions. The rest of 2013 was merely average.
There are several reasons to believe that this time the takeover tide will keep rising. Bosses accumulated a lot of pent-up dealmaking appetite during years when the credit crunch and then the euro-zone miasma made big takeovers all but impossible. Many of the combinations being proposed have been mulled for years, in contrast to the shotgun weddings dreamed up by pushy bankers in previous M&A waves.
American firms, the most active, are generating record amounts of cash but struggling to do anything productive with it. Having run out of scope for placating shareholders with share buy-backs, and having found that expanding into China and India was no panacea for their dim domestic prospects, they now hope that plausible-sounding mergers will do the trick.
Some American bidders have pots of cash in their foreign units that they cannot repatriate without paying heavy taxes. Pfizer has $69 billion of cash overseas, says Bloomberg, an information provider, by itself enough to make it one of Europe’s top 50 companies. Buying a rival in another country is one way to soak up that money.
The current crop of deals looks bigger in part because surging stockmarkets have inflated the share prices of both bidders and targets.
