Merger mania hits US$70b as investors pile in

Tokyo

BUYOUT frenzy is gripping boardrooms from Tokyo to Paris to San Francisco, adding fuel to a record-breaking rally in global stocks.

Companies kicked off the week by announcing more than US$70 billion of deals, led by Charles Schwab's US$26 billion buyout of discount brokerage TD Ameritrade Holding. Multibillion-dollar transactions involving luxury goods giant LVMH, Swiss drugmaker Novartis AG and Japanese conglomerate Mitsubishi Corp added to the buoyant mood, sending the MSCI World Index to an all-time high.

While the deals have no single theme - ranging from industry consolidation to diversifying revenue away from flagging home markets - one common thread is acquirers availing themselves of cheaper financing as central banks shift toward stimulus mode. Receding fears of a global recession and tentative signs of progress in US-China trade talks may be giving executives confidence to pull the trigger.

"The recent M&A explosion reflects an undeniable economic optimism," said Brock Silvers, managing director at Adamas Asset Management in Hong Kong. "The US enjoys both low inflation and unemployment, while the Fed looks dovish, and trade talks are rumoured to be nearing an initial success. Investment capital is plentiful and cheap."

The S&P 500 Index, Dow Jones Industrial Average and Nasdaq Composite Index all closed at record highs on Monday, while the Stoxx Europe 600 hit a level unseen since May 2015. Japan's Topix Index gunned for its best close of the year on Tuesday, helped in part by a surge of as much as 17 per cent in Hitachi Chemical Co after a larger rival was reported to eye a stake.

Given the low cost of financing, it's surprising there hasn't been even more deals, said Rhett Kessler, senior fund manager at Sydney-based Pengana Capital Group Ltd, which oversees about A$3 billion (S$2.78 billion). The Federal Reserve and European Central Bank have both restarted expansions in their balance sheets, and borrowing costs ranging from bond yields to prime and swap rates are down this year.

Monday saw at least 10 deal announcements worth US$1 billion or more, according to data compiled by Bloomberg. Other than Charles Schwab's purchase of TD Ameritrade, deals involving industry consolidation include: Canada's Kirkland Lake Gold Ltd announcement of a C$4.9 billion (S$5.03 billion) all-share agreement to buy Detour Gold Corp, and eBay Inc's sale of its ticket marketplace StubHub to European rival Viagogo for US$4.05 billion in cash.

As a reflection of companies branching out, LVMH, the luxury giant that already sells everything from Louis Vuitton bags to Dom Perignon champagne, is adding the 182-year-old US jeweller Tiffany & Co to its stable of brands. Novartis AG agreed to buy Medicines Co and its promising heart drug for US$9.7 billion, the latest move in the Swiss drugmaker's push to amass novel treatments for complex conditions.

In yet another theme, Japanese firms are going abroad. Asahi Kasei is buying Veloxis Pharmaceuticals for US$1.3 billion, the latest of a series of deals by Japanese drugmakers. Mitsubishi Corp and Chubu Electric Power Co are expected to buy Eneco of the Netherlands after being selected as the preferred bidders. The deal may help Japan shift toward renewables. BLOOMBERG

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