More than $20 billion in announced takeovers today may signal multibillion dollar deals are making a comeback after a dearth of large transactions in 2010.
Duke Energy Corp. plans to buy Progress Energy Inc. for $13.7 billion, and DuPont Co. agreed to acquire Danisco A/S for $5.8 billion. There were fewer than 20 deals valued at more than $10 billion last year compared with nearly 40 during the height of the M&A boom in 2007, according to data compiled by Bloomberg that includes debt.
Many of 2010’s biggest deals fell through, including BHP Billiton Ltd.’s $40 billion bid to buy Potash Corp. of Saskatchewan Inc. and Prudential Plc’s failed attempt to acquire American International Group Inc.’s Asian business for $35.5 billion. This year may be different because companies have available funding and are more willing to seize takeover opportunities, according to Jacques Buhart, head of M&A and restructuring at Herbert Smith LLP in Paris.
“There is going to be more pressure for companies to use the cash they have,” Buhart said. “Strategic companies have the capacity to borrow and there are a lot of assets that are available and that are cheap.”
The 1,000 biggest companies worldwide, excluding financial- services industries, have amassed more than $3 trillion in cash and equivalents based on their latest filings, according to data compiled by Bloomberg.
JBS SA, the Brazilian meat processor, is considering making a revised offer to buy Sara Lee Corp. after a bid of about $11 billion was rejected as too low, according to two people with knowledge of the matter. Sanofi-Aventis SA’s talks to buy Genzyme Corp. for about $18.5 billion now involve executives from both companies, with the two sides discussing extra payments tied to an experimental multiple sclerosis drug.
Duke, based in Charlotte, North Carolina, will assume about $12.2 billion in Progress Energy’s debt, bringing the value of the deal to about $25.5 billion. The combination will make Duke the largest U.S. utility, adding units that operate near Duke’s service territories in North Carolina and South Carolina, as well as an electricity-distribution unit in Florida.
In 2010, only two takeovers topped $25 billion, compared with four announced in 2009, according to Bloomberg data. At the same time, the number of deals ranging from $1 billion to $5 billion in size jumped 53 percent to 372 in the same period, the data show.
In one of the biggest utilities deals last year, GDF Suez SA, operator of Europe’s largest natural-gas network, took control of International Power Plc, creating an electricity producer worth $30 billion with plants from Australia to Brazil.
“The 2010 upturn is, assuming a similar environment, likely to continue to develop in 2011,” said Thierry d’Argent, global head of mergers and acquisitions at Societe Generale SA in Paris.
DuPont is paying about 23 times Danisco’s earnings per share in the year through April, according the average profit estimates of analysts surveyed by Bloomberg. Competitor Kerry Group Plc, based in Tralee, Ireland, trades at about 14 times estimated earnings; Associated British Foods Plc, in London, trades at 15 times; and Christian Hansen Holding A/S, based in Hoersholm, Denmark, is valued at 21 times.
Those who succeeded in making the biggest bets last year were commodities, utilities and telecommunications companies. Carlos Slim orchestrated one of the year’s biggest takeovers when his America Movil SAB, Latin America’s largest wireless carrier, announced plans to take over two other Slim-controlled phone companies in a deal valued at more than $20 billion.
Among 2010 deals that collapsed were buyout firms abandoning plans to take private Fidelity National Information Services Inc. and disk-drive maker Seagate Technology Plc.
Private-equity firms may gather more money from investors this year after fundraising dropped to the lowest in six years in 2010, research firm Preqin Ltd. said last week. Firms will raise more than $300 billion this year compared with $225 billion in 2010, the London-based company said in a Jan. 6 statement.
Leveraged-loan issuance in the U.S. more than doubled in 2009, led by financing for the purchases of the U.K.’s Tomkins Plc and Burger King Holdings Inc., according to Bloomberg data.
“In Europe, we have seen the reopening of the secondary LBO market and also the return of large industrial, cross-border transactions,” said d’Argent. “It reflects a confident, voluntary response to the new environment we’re going into.”
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