Mergers and acquisitions are like weddings: they cost a fortune and somebody usually cries. The juiciest ones involve a charming foreign suitor and a jealous family. Tales of two such potential nuptials are currently doing the rounds, concerning British would-be brides Diageo and BT.
It shouldn’t be too surprising. The telecoms sector has been wracked with M&A convulsions of late, as firms in mobile, fixed line and TV combine to offer competitive ‘quad play’ bundles. Deutsche Telekom got a 12% stake in BT as part of the EE deal, and is reportedly in advanced talks to merge its US arm T-Mobile US with satellite firm Dish.
That’s significant, because such a deal would effectively allow Deutsche Telekom to exit the US market, and leave it a lot of cash with which to sweet talk BT shareholders. It would need it. BT’s valued at £37bn. Even with 12% in the bag, that’s a lot of wine and roses.
Given the potential for ‘synergies’, the two firms could potentially benefit from a tie-up - if it got approval. The European Commission isn’t exactly trigger-shy when it comes to blocking M&A, having scuppered Ryanair-Aer Lingus, UPS-TNT Express and Deutsche Borse–NYSE Euronext in recent years.
However, all these deals arguably involved a reduction in consumer choice. This wouldn’t really be the case with BT and Deutsche Telekom, which aren’t in each other’s markets. Anyone hoping for EU intervention might be disappointed.
The British government could also step in, but as it gave up its veto-granting ‘golden share’ in BT back in 1997, its only way of doing so now would be on national security grounds. BT does control the national telecoms infrastructure, but a state intervention would nonetheless be remarkable, given how relaxed it normally is about foreign asset grabs.
At the same time, there have been reports in the Brazilian press that 3G Capital, run by the country’s richest man Jorge Paulo Lemann, is interested in Diageo, maker of Guinness and Johnnie Walker whisky among over 200 other drinks. Lemann has a long history in the beverages sector, having engineered the creation of InBev and its subsequent mega-merger with Anheuser-Busch in 2008.
Given the links Lemann has with Anheuser-Busch InBev, which has 25% of the world’s drinks market, it’s rather more likely that such a takeover would raise some competition authority eyebrows. An intervention by the UK government is somewhat less likely however (unless anyone can think of a national security reason to keep Red Stripe in British hands), and the Scottish government has no legal power to keep the Brazilians out of Diageo’s many distilleries in the country.
All this is, of course, just speculation. None of the firms involved have made any formal statements regarding any takeover. Still, it’s nice to dream, and what better to dream about than the distant chime of wedding bells? Diageo shareholders certainly seem to be swooning more than their BT-owning counterparts. Shares in the drinks firm rose 7% this morning to £18.84, while BT shares rose just under 1% to 443.5p.
Even if those two don't work out, there's no reason to put your morning suit or wedding hat back in the attic just yet, as Balfour Beatty is reportedly the object of a Chinese construction giant's attentions. Unless Britain starts acting like France, which blocked the sale of yoghurt-maker Danone to PepsiCo a few years ago out of 'economic patriotism', such foreign dalliances are likely to continue.