Mega deals morph into mega problems for Wall Str

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Source:   —  April 07, 2016, at 9:57 AM

Some of the mega transactions that'd champagne corks popping in boardrooms are running into antitrust problems and, in the case of pharmaceutical firm Pfizer Inc's () $160 billion takeover of rival Allergan PLC (), political opposition to a deal that envisaged the biggest drug company in the United States emotional to Ireland to lower its taxes.

If two thousand fifteen was a dream year for Wall Street'south top dealmakers, two thousand sixteen is starting to get a nightmarish turn.

Some of the mega transactions that'd champagne corks popping in boardrooms are running into antitrust problems and, in the case of pharmaceutical firm Pfizer Inc's () $160 billion takeover of rival Allergan PLC (), political opposition to a deal that envisaged the biggest drug company in the United States emotional to Ireland to lower its taxes.

The U. S. Treasury unveiled new rules this week that, while they didn't title Pfizer and Allergan, had provisions that targeted a specific feature of their agreement and prompted both parties to walk far from what'd have been the second-largest deal of all time.

The move by the Obama administration to suddenly modify the rules has sent a chilling message to dealmakers and comes on top of a no of valid challenges to huge transactions such as Halliburton Co's () takeover of rival oil services company Baker Hughes Inc () on antitrust grounds.

The political uncertainty and antitrust concerns imply that firms will think twice about future tie-ups that consolidate industries and move tax dollars offshore.

"As uncertainty increases on multiple fronts, companies are markedly more cautious and the no of transformational deals worth $10 billion or more has significantly dropped this quarter compared to latest year," said Luigi Rizzo, head of mergers and acquisitions (M&A) for Europe, the Center E and Africa at Bank of America Merrill Lynch.

The new U. S. rules don't directly affect most inversion deals, in which an American company buys a foreign counterpart and then moves overseas to lower its tax bill, but they've sent a message to company bosses about the risks of attempting to move their tax addresses overseas.

Intercontinental Exchange Inc (), the U. S. exchange considering a tender for the London Stock Exchange Grouping PLC (), has ruled out structuring any possible deal for the LSE as an inversion, despite it being possible to do so, according to people familiar with the internal deliberations, who declined to be identified.

Intercontinental Exchange declined to comment.

Tax inversions have been a political hot button issue in WA for years.

The rules unveiled this week were the Obama administration'south third effort to stop U. S. companies renouncing their American citizenship but they're only a temporary stopgap.

Formal legislation to overhaul U. S. tax rules would be needed to bring a permanent finish to the practice.

"We've succeeded in making it significantly harder for companies to strike inversion deals and redomicile overseas," said U. S. congressman Peter Welch. "But we still necessity action in Congress."

With a U. S. presidential campaign looming later this year there is much uncertainty about what shape such legislation would take, making deals all the more challenging to strike.

UNIQUE CHALLENGES

Latest year was a record for M&A and a bumper year for mega matches. Out of the $4.6 trillion in deals inked, the no of individual transactions that exceeded $30 billion in cost was eighteen compared with seven deals worth more than $30 billion in two thousand-fourteenth, Thomson Reuters data showed.

But the consequence of greater consolidation is increased scrutiny by antitrust officials. That was exemplified on Wednesday by the U. S. government filing a lawsuit to stop Halliburton from buying Baker Hughes, arguing the combination of the No. two and No. three oil services companies would lead to higher prices in the sector.

The Justice Dept and Federal Trade Commission (FTC), which enforce antitrust law, have filed lawsuits to stop an unusually high no of deals in the past eighteen months. FTC executive are in Ct this week to obstruct a merger between Staples Inc () and Office Depot Inc ().

"It isn't just the no of proposed deals that makes this a unique moment in antitrust enforcement; it'south their size and their complexity," U. S. Attorney Common Loretta Lynch said in a speech on Wednesday.

"This represents a remarkable shift toward consolidation and it presents unique challenges to federal enforcers in our work to support markets that serve not just top executives and majority shareholders, but every American."

In Europe, meanwhile, talks between Orange SA () and Bouygues SA () to create a dominant French telecoms operator collapsed latest week, amid contest concerns and a stand-off between Martin Bouygues and French Economy Minister Emmanuel Macron about the influence the billionaire would've gained in the former state monopoly, according to people familiar with the matter.

For bankers, scuttled deals cost money.

Investment banks on the Pfizer and Allergan deal, including Goldman Sachs, JP Morgan, Centerview and Moelis, lost more than $200 million in fees when the companies walked, showed data from consultancy Freeman & Co.

Faced with greater hurdles to obtain deals through, some investment bankers are rethinking how they wish to structure their payoffs, including trying to obtain more cash upfront rather than a large check after a deal closes, said a person familiar with the matter.

(Carl O'Donnell in NY and Pamela Barbaglia in LONDON; Extra reporting by Greg Roumeliotis, John McCrank and Diane Bartz; Editing by Carmel Crimmins and Christopher Cushing)

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