US merger wave surges ahead of presidential election

[NEW YORK] US companies significantly accelerated merger and acquisition activity in October ahead of the finale of a hard-fought presidential election campaign that has financial markets on edge.

In the latest examples of mega deal-making, US telecom group CenturyLink on Monday announced it was acquiring Level 3 Communications for US$34 billion including debt, while General Electric unveiled plans to merge its oilfield unit into Baker Hughes, with an implied current market value of the merged company of US$45-50 billion.

The two deals, plus a slew of takeovers unveiled earlier in the month, came as the close and contentious US presidential campaign between Republican Donald Trump and Democrat Hillary Clinton entered the homestretch. The outcome could have major implications for key US economic policies, including international trade and taxes.

Markets are also gearing up for a likely move by the Federal Reserve to increase interest rates in December, which would raise the cost of debt. Investment bankers highlighted the prospect of higher interest rates down the road as they prodded companies to pull the trigger on deals.

"Now the pitch is 'Fund your deal with debt... Rates will never be lower!," said a note from Convergex chief market strategist Nicholas Colas.

Mr Colas, in an interview, said the transactions are a sign of underlying confidence in the US economy.

"It says that CEOs and boards are fairly comfortable with where their businesses are currently," he said.

"They wish growth were better, but they don't see a big drop in the near-term horizon. If they did, they obviously wouldn't be making big bet-the-farm acquisitions."

"No matter what the change in policy may be in the White House or Congress, no matter what the (interest) rates are, overall the economy is still going to be in a good place going forward," said JJ Kinahan, chief market strategist at TD Ameritrade. "Your business is still going to be better off."

Dealmaking picked up considerably in October, data show. While the first three quarters of 2016 saw relatively few large merger and acquisition transactions, October was the second biggest month ever for US deals, according to Dealogic.

There were 602 transactions worth US$329 billion last month, just US$3 billion short of the record in July 2015.

The most controversial is AT&T's plan to buy Time Warner, parent of CNN, HBO and Warner Brothers movie studio, for US$85.4 billion. The deal has prompted criticism that the concentration of entertainment assets will harm consumers.

Mr Trump, who has harshly criticized big companies including Apple and Ford during the course of his campaign, has lambasted the transaction, while Ms Clinton's campaign has pledged to closely scrutinize the deal.

Other large acquisitions include tobacco giant British American Tobacco's proposed US$47 billion buyout of the remaining stake in Reynolds it does not own, and semiconductor giant Qualcomm's proposed takeover of Dutch company NXP, also for US$47 billion.

The deals, and hundreds of smaller transactions, stemmed from a variety of motivations, but in general, mergers can be useful in opening up cost-cutting opportunities or access to new markets during a slow-growth period, analysts said.

AFP