Busted Mergers Deals Took Center Stage in 2016
It may not have been a banner year for striking deals, but 2016 was a healthy time for breaking them.
This year was the biggest in terms of volume for busted transactions — those withdrawn after being announced — since the depths of the financial crisis eight years ago, as big takeovers by the likes of the pharmaceutical giant Pfizer, the Oreos maker Mondelez and the office supply retailer Staples were consigned to the scrap heap.
1,009 takeovers worth $797.2 billion were pulled this year.
The broken deals represent almost a quarter of the $3.55 trillion in transactions announced over the past 12 months.
Many of the deals that perished were born of the heady ambitions that filled corporate chieftains’ heads during the past two years. C.E.O.s and their bankers and lawyers pursued big, risky transactions to achieve the kind of growth that they were largely unable to achieve on their own.
Assertive government regulators and recalcitrant target companies helped quash those merger dreams. Antitrust officials deemed many of these transactions unallowable because they were likely to lead to too much market concentration. Others were denied by target companies unwilling to sell themselves — at least, at the offered prices.
To be sure, plenty of major transactions have been announced in 2016, from AT&T’s $85 billion blockbuster bid for Time Warner to the German drug maker Bayer’s $56 billion offer for Monsanto, the American genetically modified crop giant.
Still, as the year winds down, it’s worth taking a moment to remember some of the most notable deals that didn’t come to pass, depriving bankers, lawyers and other advisers of millions of dollars in fees.
Pfizer and Allergan
Size of Deal: $152 Billion
A union of the two pharmaceutical companies, first announced a year ago, would have been the biggest takeover in 15 years. It would have yielded Pfizer the huge takeover that it had long coveted — and, perhaps more important, given it the chance to finally relocate its corporate home abroad to lower its tax bill. Unusually, the purchase of the Botox maker Allergan would also have paved the way for Pfizer to eventually break itself in two.
But the Obama administration tweaked tax rules aimed at stymying so-called corporate inversions, which an increasing number of American companies had been attempting to reduce their tax bills. Those changes eroded the financial advantages Pfizer hoped to reap from buying Allergan, leading the two to eventually part ways.
Honeywell and United Technologies
Size of Deal: $90 Billion
When the two industrial conglomerates began speaking about a potential merger in the spring of 2015, it looked like a new titan, whose products would have run from thermostats to jet engines, was in the offing. But United Technologies’ desire to strike a deal fell as its stock price declined, while its executives disagreed with their Honeywell counterparts over who would control the combined company.
Honeywell persisted and went public early this year with a bid, arguing that a union could survive antitrust scrutiny. Yet United Technologies remained unwilling to combine, and, lacking leverage, Honeywell was forced to withdraw.
Energy Transfer Equity and Williams Companies
Size of Deal: $32.7 Billion
What was meant to be the creation of an energy giant quickly collapsed into recriminations and a bitter fight fueled by buyer’s remorse. Energy Transfer, an operator of oil and gas pipelines, initially sought to buy its smaller rival after failing once before.
But the slump in oil prices made the deal suddenly seem too expensive, leaving Energy Transfer to fight in the courts for a way to terminate the deal. Months of legal wrangling ensued, and in June a Delaware judge ruled that Energy Transfer had the right to walk away.
Halliburton and Baker Hughes
Size of Deal: $35 Billion
This energy industry deal was blocked by government regulators. Buying Baker Hughes would have made Halliburton a more imposing company in the world of oil field services, giving it more heft to battle Schlumberger while cutting costs.
But the Justice Department had other ideas, suing to prevent the merger on antitrust grounds. The drop in oil prices since 2014 had impinged upon the two companies’ ability to sell off businesses to appease government regulators. Eventually, the two companies broke up.
Baker Hughes’ advisers at Goldman Sachs and the law firm Davis Polk & Wardwell still had reason to celebrate by year-end, however. The company agreed in October to merge with the oil and gas division of General Electric.
Mondelez International and Hershey
Size of Deal: $23 Billion
A bittersweet ending awaited Mondelez in its quest to buy the famed chocolate maker. Mondelez, the owner of Cadbury and Nabisco, had sought to buy its confectionery competitor, hoping to succeed in a takeover when others like Wm. Wrigley Jr. had failed.
But a number of factors, from Hershey’s demands for a higher price to the legal uncertainty that surrounded Hershey’s biggest shareholder ultimately scuppered the bid.
Anbang Insurance and Starwood Hotels
Size of Deal: $14 Billion
The bidding war for Starwood proved fierce, as Marriott International battled with a group led by the Chinese insurer Anbang for control of the Westin and Sheraton hotel chains. By March, Anbang and its partners apparently had prevailed, as Marriott declined to raise its bid in the hopes that it would catch a last-minute break.
Somehow, Marriott did. Anbang — which had already bought luxury hotels like the Waldorf Astoria and the JW Marriott Essex House — mysteriously withdrew its takeover bid with a polite letter, leaving advisers to Starwood questioning whether the Chinese government had intervened. That left Marriott the winner with a $13.3 billion offer.
Staples and Office Depot
Size of Deal: $6.3 Billion
Though Staples and Office Depot stand astride the industry of selling paper clips and Post-it notes to businesses, the two retailers have suffered from the rise of e-commerce giant Amazon. That led the two rivals to turn to a merger to try to revive their fortunes — the second time in two decades that they had tried to strike a deal.
But the Federal Trade Commission sued to block the proposed union on competitive grounds. In May, a federal judge sided with the government regulator and ruled that combining Staples and Office Depot would “substantially impair” the market for office supplies.