If there is one lesson to be learned from US mergers and acquisitions this year, it might be that large takeovers are best done by gambling experts.
//
In June and July, the US gaming industry experienced a bout of consolidation that is set to transform the Las Vegas Strip, bringing 80 per cent of the tourist hotspot under the control of just two groups.
First, MGM Mirage, which operates the Bellagio casino and is controlled by billionaire Kirk Kerkorian, agreed to buy Mandalay Resort Group, which operates rival Luxor, for $7.3bn.
Then, Harrah's Entertainment struck a $9.5bn deal to acquire Caesars Entertainment, pitting it against MGM Mirage in a two-way battle to dominate the most well-known holiday destination in the US.
Both deals rode the wave of rising valuations in the casino industry and have been well received by Wall Street investors, despite concerns that regulators might quash the deals because of competition issues.
MGM Mirage tops performance list Click here
Harrah's purchase of Caesars ranked fourth, with the buyer's shares gaining 18.49 per cent more since the deal was announced than the S&P 500 index.
MGM Mirage shares have risen 55.93 per cent since a week prior to the deal announcement, or 48.57 per cent more than the index, making its acquisition of Mandalay the best deal of the year on those terms.
The transaction was the centrepiece of a busy year for Mr Kerkorian. In September, he agreed to sell Metro-Goldwyn-Mayer, an independent Hollywood film studio, to Sony and a consortium of investors for nearly $5bn.
The Dealogic analysis (see table below) shows no uniformity in shareholder reaction to large deals: about half were followed by a rise in the acquirer's relative performance, and about half were followed by a drop in the acquirer's relative performance. For example, JPMorgan's $58bn acquisition of Bank One, the biggest of the year in the US, was followed by a 4.43 per cent drop in the company's share price compared with the index.
Since Sprint's $35bn acquisition of Nextel Communications, which will create the third-largest wireless telephone company, shares in the buyer have risen 7.53 per cent compared with the index, although the deal was announced only last week.
Cingular's $41bn purchase of AT&T Wireless was not inserted in the table because Cingular is a joint venture between BellSouth and SBC Communications rather than a public company.
With a few exceptions, deals in the technology and financial services sectors are at the bottom of the table.
Regions Financial's $6bn January purchase of Union Planters, a Tennessee bank, was followed by a 10.03 per cent drop in the acquirer's share price compared with the index, while Citigroup, which bought KorAm Bank for $2.7bn in February, has dropped 9.94 per cent compared with the S&P 500.
In Silicon Valley, hopes for a dramatic rebound in M&A activity may have been hurt by Wall Street's reaction to Symantec's $13.4bn all-stock acquisition of Veritas Software last week: with a 21.98 per cent fall compared with the index, that deal has been the worst performer.
In the healthcare industry, deals have generally been well received by investors: DaVita, Fisher Scientific and Johnson & Johnson, all recent acquirers, have seen their share prices rise compared with the S&P 500 since their announcements.
One exception there is Mylan Laboratories, which in July agreed to buy King Pharmaceuticals for $4.1bn in stock. The transaction, which would add King's distribution network to Mylan's generic pharmaceuticals capabilities, was criticised by a number of key shareholders and equity analysts.
Mylan's share price has dropped 16.85 per cent compared with the S&P 500, placing it just above Symantec in the Dealogic table. The fall prompted Carl Icahn, the New York financier known for making investments in underperforming companies, to take a near-10 per cent stake in Mylan. Mr Icahn proposed to mount a bid for the company himself, turning it into one of the more gripping M&A tales of 2004.
No comments:
Post a Comment