For better, for worse: a deep dive into historic international mergers

Nov 02, 2018

Written By Becky Kells, Editor, AllAboutLaw

M&A is a dominant practice area in law, and for good reason. When companies with international influence decide on—or are forced into—a merger, there are many legal ramifications. We examine some recent and historic mergers, as well as those that went wrong.

The decision processes behind mergers and acquisitions (M&As) say a lot about the companies’ intentions and their position in the wider market at that time. A company might merge to consolidate an already strong position, while other mergers are defensive, when it’s essential for one or both companies to eliminate risk by multiplying their resources.

Last year was the biggest year for M&As so far, and 2018 also looks set to be a successful one: the total value attributed to M&As have exceeded $1.2trn in the first quarter alone, the strongest result on record. US tax reform and faster economic growth in Europe are cited as the reasons behind these staggering figures.

The recent

Eon and Innogy (controlling stakeholder: RWE).

The German utility company acquired the renewable-energy business in March this year.

Value: €43bn.

What’s interesting about it? It marks the transformation of the two European energy companies into fighters within their field. Following the acquisition, Eon will provide energy to retail customers, while RWE—the controlling stakeholder in Innogy—will acquire the renewable aspects of both businesses, as well as a 16.7% stake in Eon. Both energy companies had endured a rocky period, with pressure from regulators, and Innogy has had management difficulties and a profit warning on top of that.

It’s also a sign of the times. Both companies faced competition—with Germany pushing away from fossil fuels and towards renewable energy—and tried various business strategies to cope. It’s hoped that this early acquisition for 2018 will signal a bright future for Germany’s energy sector.

Cigna and Express Scripts.

The health insurer made a huge deal with the pharmacy benefit manager in March 2018, with the former acquiring the latter.

Value: $67 billion. $52 billion was paid in cash, with the rest being paid in debt.

What’s interesting about it? The role of a pharmacy benefit manager is to negotiate the prices of medications on behalf of insurance and employers. While Cigna asserted that the merger would “drive greater affordability” for consumers, with everything being carried out under the same roof leading to cost benefits, others suggest that prices could rise as a result—not good news for a country already known for its costly healthcare.

The Cigna /Express Scripts deal is not the only one of its kind in this sector. There have been a number of recent mergers between insurance companies and pharmacy benefits managers, which have led to more integrated supply chains in the US pharmaceutical space. Also interesting is Amazon’s plan to expand into healthcare, an ambition that might be thrown into jeopardy—or at least given some healthy competition—by this huge deal.

Amazon and Whole Foods.

The online retail giant further expanded into the food industry and physical shops with its purchase of Whole Foods.

Value: $13.7 billion

What’s interesting about it? The deal between Amazon and Whole Foods was made on June 16, 2017. It’s an interesting merger; Amazon is famous for its no-frills, super-efficient products and delivery, while Whole Foods deal in high-end, luxury groceries.

The deal marks the start of an important expansion for Amazon, into the world of food. PrimeNow and AmazonFresh made it possible for the online retailer to profit from grocery delivery, but it was never necessarily a popular option for consumers. But literally operating out of Whole Foods—a well-known name if not a household one—gives Amazon some clout in the minds of consumers who may be suspicious about getting their ingredients from a one-time bookseller.

Key markers of Amazon’s influence are already springing up within Whole Foods shops. American shoppers can now pick up technology and gadgets at Whole Foods, as well as picking up any deliveries ordered via Amazon at Amazon lockers. This gives the Amazon brand an in-store presence that it’s never relied on before. According to a statement on Amazon’s website, the companies are “working together to make high-quality, natural and organic food affordable for everyone”, as well as “integrating Amazon Prime into the Whole Foods market point-of-sale system”.

It will be interesting to see how this deal—now over a year old—evolves further, particularly now that Amazon has to wrestle with the problem of keeping food fresh. However, this marriage between an internet giant and an upmarket grocer looks set to last.

The historic

Walt Disney Company and 21st Century Fox

Value: $52.4 billion

What’s interesting about it? The deal was announced at the end of 2017 and closed on June 27, 2018, after a brief bidding war during which Comcast put in a counter-offer to acquire Fox’s assets.

It first hit headlines in late 2017 in conjunction with the American Federal Communications Commission (FCC) scrapping net-neutrality rules. In light of this, a potential deal in which media mogul Rupert Murdoch would sell his Hollywood film studio, a stake in Sky and a stake in Hulu set alarm bells ringing. Without net neutrality, there are fears that big businesses may be able to pay for faster internet speeds, meaning greater exposure to consumers in comparison to smaller providers.

A key takeaway from this international deal is that the laws in multiple jurisdictions had to be considered. There was a lot of worry that US regulators wouldn’t let the deal through, but these were somewhat alleviated when AT&T got the go-ahead to acquire Time Warner in June. Elsewhere in the world, UK law demands that media outlets aren’t monopolised. The deal’s success would place Disney in control of Sky within the UK, which could raise issues with Ofcom.

Vodafone AirTouch and Mannesmann

Value: $183 billion

What’s interesting about it? Cast your mind back, age permitting, to 2000, when Vodafone was the fourth largest company in the world. The tech giant was in deep negotiations with Mannesmann, a German company, about a merger. It’s also a prime example of a hostile takeover that was depicted officially as a friendly merger. Mannesmann were resistant to the takeover, negotiations took a long time and were often heated, and initially many Mannesmann employees protested the takeover, fearing job losses. They were later reassured that jobs would be safe in Germany.

The deal came at a pivotal time for technology, with mobile-phone usage on the rise the world over and plans in place to integrate internet access into phones.

The failed

America Online and Time Warner

Value: $165 billion

What’s interesting about it? This deal occurred at the turn of the century, with the internet steadily on the rise as a household staple and business opportunity alike. Stephen M Case, a co-founder of AOL, dubbed the announcement of the deal as “a historic moment in which new media has truly come of age”. AOL was a dotcom giant that saw the appeal of Time Warner’s cable network and media output.

But it was not to be. Not only are the companies now separate, their current combined value is just one-seventh of their worth when they merged. Since 2000, jobs have been lost, investigations by the Exchange Commission and the Justice Department have been carried out, and the slow unwind of the deal has gone down in history. Time Warner officially divorced AOL in 2009, and was officially acquired by AT&T this June. This well-documented fall from grace brought its share of lessons: a deal borne of uncertainty with a huge initial investment is unlikely to go the distance.

Kraft Heinz and Unilever

Value: $143bn, had the deal gone through.

What’s interesting about it? The deal was rejected before it even got off the ground. Unilever delivered a firm “no” to Kraft Heinz, who sought to take over the former in February 2017. Unilever’s bosses felt that the $143bn deal “fundamentally undervalued” the company, saying that it saw “no merit, either financial or strategic, for Unilever’s shareholders”.

Kraft Heinz was formed via a 2015 merger, backed by 3G Capital and Berkshire Hathaway, to create the fifth-largest food and beverage company. Unilever is British-Dutch company that generates revenue from personal care, cleaning products as well as food. The deal between the two was quelled in just 48 hours, with Unilever making it clear that it would do everything within its power to prevent a merger.

There’s shaky history for UK-based companies when it comes to the Kraft name. In 2010 it took over Cadbury, initially promising to maintain jobs. The promise was unfulfilled, as the Somerdale factory in Somerset was closed.

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