Tuesday’s tiny flurry of mega-mergers–biggest among them Hewlett-Packard Co.’s deal to acquire Compaq Computer Corp.–shows that, despite an uncertain economic outlook, companies still are willing to pull the trigger on strategic deals.
Although far from the Merger Mondays of the M&A glory days of the late 1990s, deals worth more than $30 billion were announced Tuesday, after a long stretch of lethargy for mergers and acquisitions.
“It’s a good sign,” said Rick Leaman, head of mergers and acquisitions with UBS Warburg. “More decision-makers in the tech sector might start to try and figure out how to make one and one into three.”
But, though some bankers say the pace of mergers and acquisitions may be beginning to pick up, by no means are they predicting a return to the go-go Internet era, which helped propel such activity to all-time highs: In just three years beginning in 1998, U.S. companies were involved in mergers with a total value of nearly $4 trillion.
Now, bankers say, jitters about the economy, stock market gyrations and the cloudy earnings outlook for many industries continue to hamper dealmaking.
Indeed, even with Tuesday’s burst of activity, the total value of announced deals so far this year in the U.S. is less than half of the $1.2 trillion recorded for the same period last year, according to Thomson Financial.
Among Tuesday’s deals, along with the more than $20 billion HP-Compaq deal, was a second in two days in the energy sector, a relatively hot area for mergers in 2001: Devon Energy snapped up Canadian natural-gas producer Anderson Exploration for $4.6 billion, including debt. On Monday, Santa Fe International snagged rival oil driller Global Marine for nearly $4 billion.
The Devon-Anderson deal would create the largest independent producer of oil and natural gas in North America and give Devon a long-term position in the plentiful gas fields of Canada, from where a growing portion of the United States’ supply comes.
Devon is paying $3.4 billion in cash for Anderson, which represents a 51 percent premium for the shares of the Calgary, Alberta-based company.
The purchase of Anderson comes three weeks after Devon agreed to buy Mitchell Energy & Development Corp., of The Woodlands, Texas, for $3.1 billion in cash and stock. Analysts evaluating the deal believe Devon may have bitten off more than it could chew in such a short period of time.
Separately Tuesday, Deutsche Telekom AG said it has signed definitive agreements to sell cable television operations in six German regions for about $5 billion to Engelwood, Colo.-based Liberty Media Corp. More than 10 million homes are served by the cable network in the six regions, Deutsche Telekom said. The six operations employ a total of around 2,800 people.
Analysts said the deal gives Liberty Media, which is led by longtime cable TV entrepreneur John Malone, an opportunity to build a cable franchise in the image of his erstwhile U.S. cable giant Tele-Communications Corp. in a European market than many believe has more growth potential than the United States.
Liberty also owns stakes in a number of television programmers. Its holdings include interests in AOL Time Warner, News Corp., Starz Encore Group, QVC, and Discovery Channel.
Those deals come on the heels of a significant dry spell for mega-mergers. For the last two weeks of August, there were only four global deals valued at $1 billion or more, according to Rick Escherich, a managing director with J.P. Morgan’s mergers and acquisitions group. That average of two mega-deals per week compares with an average weekly total of nearly 10 last year and 9.2 for August 2000, Escherich said.
