Mergers & Acquisitions Roundup

In recent months on this blog I have updated and followed up on a variety of mergers and acquisitions in a variety of different industries. The past week has seen some movement on some of those proposed mergers or attempted hostile bids or whatever the case may be; the best way to update them is to provide a summary of each situation.

The M&A market is expected to gain traction in the coming months after a slower than normal start to the year, especially in certain industry types.

CVS – Aetna
This proposed mega-deal made the news on Wednesday because the $40 billion debt deal that CVS is undertaking as part of the nearly $70 billion dollar merger is going to lower their credit rating.

It is no secret that certain lending institutions would consider CVS a credit risk with taking on such a significant amount of debt at one time. It was a component of the deal that nobody discussed when it was initially announced.

Then, on top of that debt load issue, are the rather legitimate conflict of interest and consumer protections aspects of this deal which are still being reviewed. The general consensus is that a foundational problem with this merger is the combination of a major health insurer with a major retail pharmacy chain which has a parent company involved in healthcare services.

It will be interesting to watch this merger, if approved, it could be a situation where CVS Caremark wins the battle but loses the war.
Broadcom vs. Qualcomm
This attempted hostile takeover by Broadcom of their U.S. based competitor, Qualcomm has been a very strange scenario from the beginning.

The whole backstory is very complicated, and some great reporters and financial news services have provided insightful reporting on this convoluted mess. Broadcom is a tech company based in Singapore and they have attempted to buy Qualcomm multiple times at different valuations.

The problem for Qualcomm is that they do not have another willing investor or potential suitor that they could join forces with in a more amicable way to stave off Broadcom.

Then, to top it all off, the U.S. government got involved in the past week to temporarily halt the potential merger over concerns that a foreign held company was acquiring a U.S. based company with certain proprietary technologies in telecommunications. They have certain regulatory concerns over the deal.

Broadcom has now pledged to the U.S. government on Wednesday that they will invest in the training of American engineers and others in the workforce to keep high-paying, “good” jobs in the United States.

The whole situation is a disaster and it has been from the beginning. I am not sure if the federal government is going to sign off on this proposal. That creates uncertainty for the future of Qualcomm as well.

Smuckers & ConAgra

What struck me about this proposed deal (which is now dead) is that in my time in the food industry ConAgra was always usually in the role of the buyer. In this case, they were looking to sell their Wesson brand cooking oil business to JM Smucker Company.

The federal government shutdown the deal over anti-trust concerns citing that Smucker would then control about 70% of the entire cooking oil market. The government felt that this would be unfair to the consumers and could create price hikes that would limit consumer choice.

The Smucker side of the story is, in short, that the government used inflated numbers and did not take into account the impact of private label brands and smaller regional brands in the cooking oil market. I must add in the defense of the government, that not too many smaller brand labels of cooking oil jump to my mind.

I could understand the rationale behind Smucker (who generally make smart decisions in M&A activity) would want the Wesson brand. I can only predict that ConAgra wanted to sell the brand because they are moving away from holdings in that segment of the industry and they would have used the cash from the deal to invest into more core strategic areas of new business development.

Comcast versus Disney/FOX Over Sky TV

The latest bidding war is just heating up between Comcast and Disney/FOX over the rights to SKY. A major investment bank downgraded Comcast stock after they put that offer on the table for SKY.

I understand Comcast trying to bolster their core business in this play for SKY, but it does make you wonder if the deal is done whether or not they will have overextended.

Bayer & Monsanto
A major mega-merger which I have covered since it was announced. The European Union issued a statement saying they will have a vote on the proposal soon after multiple postponements in recent months.

This merger proposal will have an impact on the farmers, the consumers, and the price of food supplies. The introduction of more potential GMO containing seeds is another concerning aspect of this deal that merits the attention of the public.

Rite Aid and Albertson’s

The debacle that was the failed attempt of Walgreens and Rite Aid to merge, left Rite Aid in a precarious situation when stacked against larger competitors.

The list of suitors for Rite Aid within the retail pharmacy landscape was slim to none, so they went outside the box a bit and found a partner in Albertson’s to bail them out.

Albertson’s is a large retail grocery chain for those who do not know, and they used to own pharmacies that were operated within their grocery stores primarily. So they understand the aspects of the retail business and some of the dynamics of the retail pharmacy channel.

This merger actually makes some sense and will allow Rite Aid to stay alive in an increasingly competitive market.

That is the roundup on mergers for now. I am sure that one or all of these proposals will have some developments as we move forward in the coming weeks. Stay tuned.

The Battle Over Sky News: Front Lines In The Media Battle Between Comcast and Disney

The financial news had some buzz around the potential for a bidding war between Disney/FOX and Comcast for Sky News/Networks on Tuesday. This activity signals what could be the opening salvo in a protracted battle between the major players in the television/visual media to play out across the next several months.

In this case, the asset is Sky News/Networks which has a viewership reach in Europe that is valuable for media companies seeking to expand their capacity and content distribution. In the current situation, FOX owns part of Sky and presented a bid recently to purchase the remaining stake it did not own.

Comcast jumped into the mix on Tuesday with an offer to purchase a controlling interest in Sky which represents a 16% higher valuation than the offer made by FOX. This situation is further complicated by the pending merger of Disney and FOX which essentially puts Disney into the driver’s seat on this deal because Disney would ultimately own Sky upon completion of the merger.

This means that Disney would have to evaluate the offer made by Comcast and decide whether they will propose a counter proposal for Sky. Many financial and merger experts with knowledge of the situation believe that a counter offer will take place and that Sky Networks will end up selling at a premium after a bidding war between Disney and Comcast.

Furthermore, the sentiment in the industry on Tuesday was that Disney might, in essence, lose the battle for Sky Networks, but “win the war” by securing some type of legal assurances from Comcast regarding the bidding for other FOX assets. Disney wants to avoid having bidding wars with Comcast over several different pieces of the now almost former 21st Century Fox properties.

It remains to be seen whether Disney can wrangle that type of agreement out of Comcast which would be unusual but not unprecedented. The general sentiment about the future of Sky is that they would be best suited with Comcast because it meshes better with their core business.

Many consumers visualize Sky as a news company, especially in America where we may have the channel as part of a cable or satellite TV package. The parent company, Sky PLC, which is what is at stake here in this potential bidding war between Comcast and Disney/FOX is much larger than just a news service.

Sky has a satellite television service, broadband service, on-demand internet streaming services, and telecommunications service offerings in the United Kingdom, Ireland, Austria, Germany, and Italy. This asset would increase the service offering capabilities for Disney with their new streaming application or for Comcast who is in the business of optimizing home entertainment, broadband, and telecommunications services.

Moreover, the much larger battle will revolve around the future of Hulu. The Hulu streaming service is owned partially by ABC/Disney, FOX, and Comcast (NBC). The proposed merger of the Disney and FOX assets would include their respective stakes in Hulu.

In fact, the potential to control streaming content through Hulu was one of the significant factors in the Disney bid for FOX according to a report from CNBC and Comcast could create some trouble in giving up their piece in Hulu in the future.

The total sum of this consolidation activity, amid the backdrop of Disney preparing for launch of their own streaming application service, will affect the consumer. The rights to content and the distribution of content will be the main driver in the way the consumer accesses all types of media. The control of that content into the hands of the few, is going to set the table for conditions where pricing can become prohibitive.

Disney, should the pending merger meet approval, would retain their 30% share in Hulu plus gain the 30% share held by FOX and would be the majority stakeholder in the streaming service which reaches over 30 million subscribers and has revenues from ad sales and subscription fees. It is also a significant asset that Comcast has invested money into as well and they may not be willing to just part ways with their stake. They could put Disney “over the barrel” for that last big piece of the Hulu business unit.

The overall health of Sky as a provider is solid, it is my understanding that the business growth in Italy was stagnant for a long period of time but that it has since rebounded. It remains to be seen if the change in ownership causes any noticeable alterations to the way that the customers in Europe will be serviced. Most merger and acquisition type of scenarios feature the potential suitors touting the benefits they would bring to the table.

This case is no different with Comcast essentially stating that they would improve the services offered currently by Sky and use their technology and service delivery expertise to help provide a better customer experience.

Disney has also made similar overtures in their bid stating how desirable Sky would be for them to reach European audiences in a new way, and that they would fully complete the consolidation of an asset that was held in part by FOX for a long period of time. They would look to build upon that tradition and reputation that FOX has built into the programming and content there, but the management of the other portions of that business are outside the scope of the core business for Disney.

The proposals for Sky News and the parent company, Sky PLC, are almost certainly going to create a bidding war between two media heavyweights: Disney and Comcast. This bid could very well represent the opening round of a war between the two entities for other assets contained both within the FOX/21st Century Fox business and outside of those businesses.

The stakes for the consumer are high because the control of content and distribution will both be up for grabs, and the costs for access to that content will have a definitive impact on the consumer in the future. It remains to be seen which side will ultimately emerge, but what is clear is that either Disney or Comcast will be growing even larger and more influential than they are today.

(Background information courtesy of Fortune,, CNBC, Recode)

Call Waiting: Verizon Back Peddles On Merger Rumors

The news out of Verizon on Thursday is that the comments made by their CEO, Lowell McAdam, were taken out of context regarding a potential merger involving the telecommunications giant.

The CFO of Verizon, Matthew Ellis, attempted on Thursday to clarify earlier remarks made by Mr. McAdam to the media. Those comments alluded to a potential merger of Verizon with Disney, Comcast, or CBS.

However, Mr. Ellis today offered a different explanation in stating that Mr. McAdam was answering a question about whether or not he would “take a call” from Disney, Comcast, or CBS. The comments are now being walked back by Verizon, today they clarified that they would be open to strategic partnerships with those entities and not an actual merger.

This clarifying statement from Verizon comes after several financial news sources ran with a story that Verizon was exploring a merger, and the stock prices of those three entities involved: Disney, Comcast, and CBS all saw increased trading activity.

It is no secret that Verizon is looking to grow certain aspects of their business, the acquisition recently of Yahoo is proof of that strategy. The senior management at Verizon have steered away from obtaining other large media companies, which is unlike their other competitors in this space. The deal between AT&T and DirecTV jumps to mind as the type of avenue to growth that Verizon has repeatedly avoided.

The earnings call with Mr. Ellis today described what Verizon calls “organic growth” of the company. The exact definition of that strategy is not completely defined, but like any other communications provider and internet service provider, Verizon is consistently looking for content. The old “content is king” mantra is still paramount in this industry space.

In an increasingly visual world, the demand for video content is at the core of what Verizon needs to fill within their own content pipeline. It is in this vein that a strategic partnership or some sort of partnership agreement with Disney, Comcast, or CBS would make sense for Verizon. Those entities have their own exclusive content or partnerships to provide content for other entities such as Major League Baseball, the National Football League, and the National Hockey League.

The demand for sports content is always robust and the demand for other types of entertainment in digital platforms is a demand curve that Verizon is going to be relentless in trying to meet over the next several months. The earnings call also came on Thursday amidst reports that the Verizon FIOS television service has lost over thirteen thousand subscribers in a short amount of time.

The streaming media services and the growth of other platforms to watch content is causing many Americans to “cut the cord” on cable, telco, and satellite TV services. The “on demand” culture and the binge watching patterns of the new ways that consumers expect has caused the drop off in the FIOS subscriptions.

This could create conditions where FIOS, AT&T/DirecTV, and Comcast are forced to reinvent themselves and provide more value to the consumer for the service. The advent of the DirecTV service that allows the viewer to watch at home or on a tablet or smart phone is a step into the future of the television trends to follow.

The question of whether or not Verizon is exploring a merger is a complicated one. It would make some degree of sense on one hand given the complexities facing the industry and the changing dynamics of digital content consumption.

Verizon is also prepared to face rather significant anti-trust regulatory reviews especially if they were to merge with Comcast, which would absolutely create a monopoly in the industry. That merger would have far-reaching implications for both private homes and small businesses as the internet is needed for doing really everything today from shopping, to watching movies, and to work related functions.

It remains to be seen whether Mr. McAdam was taken out of context, or whether there is more than meets the eye with this story. The ambitions of Verizon will come into focus in the near future. The company should, at the very least, consider some kind of partnership with another media company to fill the video content gaps that exist currently.

Verizon also knows that mergers or acquisitions are a complicated process and that ties up time and resources from being able to grow the company in other ways. In the end, only time will tell which direction they choose to grow their business in an increasingly competitive, evolving, and cost driven environment.

Busy Signal: AT&T and Time Warner Proposed Merger

The news today of a potential merger between two giants in the media industry: AT&T and Time Warner brought with it both a wave of enthusiasm and skepticism in the financial markets and the multimedia/telecommunications industry. The enthusiasm was demonstrated on Wall Street, where Time Warner stock trading surged, with their stock price up around 13% at one point in today’s activity.

The skepticism comes on the part of some consumer groups who are concerned about what this merger might mean for costs of internet access, cellular phone and data plans, and satellite television services (AT&T merged with Direct TV previously). There is also some legitimate cause for regulators to reject this deal, so there is some caution in the industry that this merger may eventually come apart.

The proposed deal includes Time Warner’s film division and cable television division which includes channels such as TBS, TNT, CNN, as well as the crown jewel of premium cable networks, HBO. The deal is valued, according to sources, at $300 billion. It would be the largest merger in the media industry since Comcast completed the acquisition of NBC/Universal in 2011.

This trend would continue what I have deemed in other mergers as the “big getting bigger” scenario. Time Warner is a huge company with many different divisions and huge market presence in media of all forms. AT&T has a market cap of $233 billion and provides cellular phone, internet, telecommunications, and satellite television services to millions of consumers. The combined entity would be a goliath capable of competing with Comcast/Universal, which I maintain is one of the goals of this move today.

The trend of the average consumer looking to cut out their cable television service, or “cord cutting” as it is known, is something I have written about in the past, and it is an increasing trend. This trend is damaging the cable television providers and the cable networks from making revenue gains. This has particularly impacted Time Warner’s cable services division, and made this potential merger a way to partner with a larger company to expand their reach.

The trend toward streaming content is also a driving factor in this proposed merger, as AT&T has been actively pursuing the development of their own streaming content service which would be offered via the Direct TV platform. The combination with Time Warner would provide AT&T with more advantageous content streaming negotiations because they would be better positioned to control the content from TBS, TNT, CNN, and most importantly, HBO.

HBO has top rated content that is sought after by competing streaming services and cable and telco providers. This would put AT&T in the proverbial driver’s seat of those negotiations, but is the same reason why regulatory boards will have issues with this deal.

The Wall Street Journal reported that regulators have some regrets over the Comcast merger with NBC/Universal which they do not want to have repeated by this potential media industry transaction. The Time Warner properties in the cable network division also have exclusive rights (or partial exclusive rights) to sports content such as the NCAA Tournament in college basketball, NBA basketball games both regular season and playoffs, and Major League baseball both regular season and playoff games. This made the deal more attractive for AT&T because of the demand for live sports programming, but it will also make the regulatory scrutiny that much more heightened because that content is meant to be seen by everyone and not meant to be restricted to only certain providers.

This proposed merger, should it gain approval, would give AT&T a huge advantage in providing streaming content for their cellular phones and their new service with Direct TV customers. It would provide Time Warner with more outlets for their content and more consumers in parts of the country which they could not reach with their traditional cable television services. It would offset the loss of cable television consumers through the streaming rights agreements for their content that they will gain through millions of AT&T customers.

However, in the end, this media giant would have more control over more content and that should give both the industry and the consumer cause for concern. This merger should be stopped because it will provide too much control to one corporation, we saw what happened with Comcast and NBC, we cannot afford to let that happen again.

(background information and stats courtesy of CNBC, The Wall Street Journal, and CBS News)