On Tuesday, a judge approved the merger of Time Warner and AT&T, ending a lengthy regulatory process that involved the US Department of Justice suing to block the deal.
The ruling portends big things ahead for other so-called vertical mergers, many of which are still pending, including a pair of massive, high-profile healthcare deals.
Meanwhile, there are multiple market forces in play that suggest M&A activity could be set to explode further.
When AT&T and Time Warner finally received approval for their blockbuster $85 billion merger on Tuesday, everyone involved in the deal rejoiced. After a hard-fought battle with regulators, they were able to enjoy the fruits of their labor at long last.
But the impact of the court ruling will stretch far beyond AT&T and Time Warner, and even the media industry at large. It’ll likely continue to reverberate through the corporate ecosystem for months, giving hope to the handfuls of other deals currently suspended in regulatory purgatory.
Getting the biggest boost will be so-called vertical mergers, which involve the combination of companies occupying different parts of the supply chain, rather than direct competitors.
“Yesterday’s decision will likely result in existing deal spreads narrowing (on all deals, not just telecom) and potentially a new wave of larger mergers across sectors,” Daniel Clifton, a policy analyst at Strategas Research Partners, said on Wednesday. “The government had no choice but to stand down from an appeal.”
Makan Delrahim, who was appointed by Donald Trump as head of the US Department of Justice’s antitrust division earlier this year, looked poised to clamp down on vertical mergers when he sued to block the AT&T-Time Warner deal in November. Now it’s possible that the ruling will dissuade him from impeding similar deals in the future, or at the very least make it more difficult for him to effectively do so.
And stock prices reacted in kind all around the market. Perhaps the most obvious beneficiary is 21st Century Fox, which has been the focus of a fierce acquisition battle between Comcast and Disney, and whose stock rose more than 7% in early trading on Wednesday.
There’s also a huge amount at stake in the healthcare industry, where multiple vertical mega-mergers hang in limbo. CVS Health has proposed a pending $69 billion merger with Aetna to create an even more diversified juggernaut, while Cigna’s $67 billion offer for Express Scripts is also still awaiting approval.
Based on price action in the space, investors were clearly feeling encouraged by the AT&T ruling. Aetna rose as much as 3.8% in after-market trading following the court ruling, while Express Scripts climbed 5.6%.
Unstoppable market forces
Of course, no discussion of easier M&A conditions is complete without assessing the seemingly unstoppable market forces that are both arming companies with mountains of cash and pressuring them to use it as …read more
Source:: Business Insider