Developed Stocks Hit a Record as Merger Mania Tops US$70 Billion

NEW YORK (Capital Markets in Africa) – A buyout frenzy is taking hold of boardrooms from Tokyo to San Francisco, and it’s adding fuel to a record-breaking rally across the world’s major stock markets.

More than $70 billion of deals have already been announced this week, with Charles Schwab Corp.’s $26 billion buyouts of discount brokerage TD Ameritrade Holding Corp. leading the pack. Luxury goods giant LVMH, Swiss drugmaker Novartis AG and Japanese conglomerate Mitsubishi Corp. are among a slew of companies that have also announced multibillion-dollar transactions.

For investors, the sudden burst of activity is being seen as a vote of confidence in the outlook as recession fears ebb and the U.S. and China edge toward a trade deal. The S&P 500 Index, Dow Jones Industrial Average and Nasdaq Composite Index all closed Monday at records, and the MSCI World Index of developed-market stocks was trading at an all-time high on Tuesday.

“The recent M&A explosion reflects an undeniable economic optimism,” said Brock Silvers, managing director at Adamas Asset Management in Hong Kong. “The U.S. enjoys both low inflation and unemployment, while the Fed looks dovish, and trade talks are rumored to be nearing an initial success. Investment capital is plentiful and cheap.”

That cheap cost of funding is the common denominator across the deals, which have motives ranging from industry consolidation to diversifying into new markets. Policymakers across the world have been cutting interest rates in a bid to shore up economic growth, and the Federal Reserve and European Central Bank have even been forced to expand their balance sheets.

Given the low cost of borrowing, it’s surprising there hasn’t been even more merger and acquisition activity, according to Rhett Kessler, senior fund manager at Sydney-based Pengana Capital Group Ltd., which oversees about A$3 billion ($2 billion).

For all the optimism spurred by the flurry of dealmaking, there are reasons for caution. Merger and acquisition activity typically tends to peak along with the business cycle, meaning some market participants will read this as a late-cycle signal. Meanwhile, deals like Schwab’s purchase of TD Ameritrade are symptoms of structural industry changes, rather than the health of the economy.

Investor exuberance beyond the U.S. appears more measured. While the Stoxx Europe 600 is at about the highest since May 2015 and Japan’s Topix Index touched the strongest level this year on Tuesday, both lag the performance of the S&P 500 in 2019.

There were at least 10 deal announcements worth $1 billion or more on Monday, according to data compiled by Bloomberg. Here’s a rundown of the key details:

Industry Consolidation

• Charles Schwab, the San Francisco-based brokerage, announced it would acquire TD Ameritrade, amid a collapse in investing costs as providers embrace $0 fees
• Canada’s Kirkland Lake Gold Ltd. announced a C$4.9 billion ($3.7 billion) all-share agreement to buy Detour Gold Corp.
• EBay Inc. is selling its ticket marketplace StubHub to European rival Viagogo for $4.05 billion in cash

Branching Out

• LVMH, the luxury giant that already sells everything from Louis Vuitton bags to Dom Perignon champagne, is adding the 182-year-old U.S. jeweler Tiffany & Co., known for its robin’s egg blue boxes
• Novartis AG agreed to buy Medicines Co. and its promising heart drug for $9.7 billion, the latest move in the Swiss drugmaker’s push to amass novel treatments for complex conditions
• Canadian convenience-store giant Alimentation Couche-Tard Inc. offered A$8.6 billion ($5.8 billion) for fuel retailer Caltex Australia Ltd., sweetening its bid for about 2,000 sites as it seeks to broaden a global expansion

Japan Goes Abroad

• Asahi Kasei is buying Veloxis Pharmaceuticals for $1.3 billion, the latest of a series of deals by Japanese drugmakers
• Mitsubishi Corp. and Chubu Electric Power Co. is expected to buy Eneco of the Netherlands after being selected as the preferred bidder. The deal may help Japan shift toward renewables

Source: Bloomberg Business News