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Globally, mega merger deals are back and doing just fine…

Mega mergers | Globally, mega merger deals are back and doing just fine… Anthony Harrington

There was a time at the height of the credit crunch when everyone was convinced that the days of the multi billion pound merger were over. However, while the non-availability of cheap lending from banks means that it remains difficult, if not impossible, for large private equity groups to lead huge mergers, this has simply cleared the field for the large multinationals to pluck the low hanging fruit. According to the market website Stockopedia, in the second quarter of 2010, oil and gas M&A activity clocked up deals worth more than $42 billion.

This figure has only been eclipsed, in the last three years, by the fourth quarter of 2009, which was a freak number anyway, skewed by the presence of ExxonMobil’s $41 billion acquisition of XTO Energy, Stockopedia points out. 

The latest merger mania in the sector has been largely driven by companies looking to get in on the new fad for shale oil production in the US. It is a development deeply hated by environmentalists who claim that the energy required to produce oil from shale sources is just about the equivalent to its output and adds massively to the sector’s carbon footprint. In all some $12 billion of US shale gas deals were signed in the quarter, with Royal Dutch Shell leading the way, with a $4.7 billion acquisition of Marcellus, the shale gas specialists.

Apart from the intrinsic difficulty of breaking the gas out of oil shale, US companies are increasingly under scrutiny from local environmental groups. However, with more than a trillion barrels of oil equivalent locked up in shale deposits, more than the world’s remaining reserves of light sweet crude oil, the stakes are enormous – hence the merger mania.

Outside the oil and gas sector deals have also been materialising at an impressive rate. In the drinks sector, for example, the start of 2010 saw Heineken, the world’s third largest brewer, making an all stock purchase of Mexico’s FEMSA in a $5.7 billion deal. The acquisition boosted Heineken’s emerging market footprint. Mexico is the world’s fourth biggest beer market, with the US heading the pack and Brazil running second. Moreover, with the world’s biggest brewer, Anheuser-Busch, maker of Budweiser, getting a $2.5 billion claim against it by Model, Mexico’s largest beer maker, set aside in July this year, the way is now open for the out and out acquisition of another Mexican brewer.

This is a complicated story, with Anheuser originally gaining 50% of Modelo and then annoying the Mexican beer maker by transferring its 50% stake in Modelo to the Belgium-based beer maker, AB InBrev, as part of Anheuser’s $52 billion merger with InBrev in 2008. Industry watchers now expect InBrev to make a bid for the rest of Modelo. (Those interested should see this Bloomberg Businessweek story.)

The rise and rise of the international utility company continues to be a theme. We saw Spain’s Iberdrola set the theme with its acquisition of Scottish power a few years back. Now France’s GDF Sues, which is still 35% state owned, has agreed a complex merger with the UK’s International Power, which gives the French utility a 70% stake in International Power. Under the deal GDF Suez will be transferring its energy assets to International Power and the combined group, which will remain London listed, is expected to be worth around £19 billion, as against International Power’s current value of around £5.7 billion (source: The Telegraph. The deal was backed by International Power’s biggest shareholder, Invesco Perpetual.

For further reading on mergers and acquisitions see:

Tags: drinks industry , M&A , Mergers and Acquisitions , oil and gas , shale oil , trading , utilities , utility companies
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