A flurry of corporate dealmaking in recent days is creating the illusion of an almost-return to normalcy — that is, buyers are confident enough to be buying again even as Covid-19 continues to burden the U.S. economy.
But don’t let the billions of dollars suddenly swishing around the M&A market fool you: This isn’t a Merger Monday to celebrate. None of the announced deals necessarily signals renewed bullishness toward the economy, and in fact, one is flashing just the opposite.
For starters, there’s the TikTok takeover saga, which looks like it will end without an outright takeover and rather a partnership with Oracle Corp. Remember, these negotiations were brought about not by natural market forces, but by geopolitical tensions with China and somewhat squishy national-security logic employed by the White House.
Also in the tech space, Nvidia Corp. is buying chip designer Arm Ltd. from SoftBank Group Corp. for $40 billion, in what ranks as the biggest transaction of 2020 and a chance for Nvidia to cement its industry dominance. But the backstory is just as important: The deal is part of a larger retrenchment by SoftBank billionaire Masayoshi Son — also now known as the “Nasdaq whale” — after a series of ill-advised investments left his empire facing shareholder pressure to shed assets and shore up is finances. Just like TikTok, Arm is essentially a forced sale — not the kind used as a market barometer.
A smaller acquisition announced by Verizon Communications Inc. on Monday may be even more telling. The company agreed to acquire TracFone Wireless for up to $6.9 billion in a bet that the market for prepaid, or pay-as-you-go, plans will see increased demand amid the crisis. Verizon is the biggest U.S. carrier, but when it comes to prepaid it’s been a laggard. That market had also been shrinking in recent years as U.S. wage and job growth enabled more customers to upgrade to postpaid plans that require better credit and get billed at the end of each month.
When T-Mobile US Inc. bought Sprint Corp., I noted that their combined market share in prepaid could worry regulators — or it least it should have — because economists were already vaguely predicting a recession was on the way even before Covid-19 hit. It’s now here, and to the extent that the prepaid market serves as an inverse economic indicator of sorts, Verizon seems to be betting more people will have to resort to this kind of service amid what promises to be a slow and uneven U.S. recovery. As I wrote last week, various consumer-spending patterns provide stark evidence of a K-shaped rebound exacerbating the nation’s wealth inequality.
In other M&A news, Gilead Sciences Inc. agreed to buy Immunomedics Inc. for $21 billion to expand beyond its core HIV-treatment business and gain a promising breast-cancer drug. My Opinion colleague Max Nisen cautions that Gilead looks to be overpaying, though, and may wind end up experiencing buyer’s remorse. Unfortunately, it’s yet another example of how this Merger Monday feels a bit more like the Sunday Scaries.
Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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