A buyout deal is one of the most exciting pieces of news that a shareholder can get when it comes to the future of a stock. However, shareholders of Allergan (AGN), Baker Hughes (BHI) and Office Depot (ODP) all currently have their buyout dreams hanging in the balance.
Allergan (AGN)
Back in November, Pfizer (PFE) announced a massive $160 billion buyout of AGN at a price of around $345 per share. However, even with the deal originally expected to close by the end of 2016, AGN’s stock is still trading about 23.5% below the buyout price.
Why? The combination of PFE and AGN would be the largest merger in the history of the healthcare sector. In fact, the combined company could end up as one of the five largest companies in the world by market cap. With a deal this size, it’s no surprise that there will be intense antitrust scrutiny.
Drug pricing has been a popular topic in the U.S. presidential campaign season, and Democratic candidate Bernie Sanders recently called out this deal specifically as a “tax scam.” Sanders even urged the U.S. Treasury to block the deal for Allergan stock.
If the political backlash against tax inversion deals continues to gain momentum the tax structure, not the antitrust concerns, could end up being the death knell for this massive merger.
Baker Hughes (BHI)
While scrutiny about the AGN/PFE deal seems to have more to do with taxes than market share, the regulatory push-back regarding Halliburton (HAL)’s proposed $34.6 billion buyout of BHI is all about competition. The buyout was originally announced back in November of 2014 and HAL was set to acquire BHI at a price of around $60/share by the end of April 2016.
That was the plan, anyway.
However, with only about a month left until the projected closing date, BHI shares are still trading 25% below the buyout price on market fears that the deal will get blocked by regulators.
The deal is still being reviewed in both the U.S. and in Europe, but European regulators announced just this week that they are halting their review for a second time pending a request for additional information. To appease antitrust concerns, HAL has already presented a plan to divest assets that generated a combined $5.2 billion in revenue prior to the downturn in crude oil prices.
Iberia Capital Partners analyst Robert MacKenzie recently lowered his probability of a completed deal to 40-50%. It’s no wonder the market has its doubts.
Office Depot (ODP)
Doubts are one thing, but the market seems convinced that the proposed deal between ODP and Staples (SPLS) is dead in the water. Strangely enough, the fate of the deal may hinge on whether or not Staples lawyers can convince a judge that Amazon (AMZN) will be a major player in the office supplies business in coming years.
The FTC argues that ODP and SPLS together account for about 80% of the current office supplies market. SPLS attorneys have been pleading their case that companies like Borders and Circuit City also dominated their markets prior to the arrival of Amazon.
The market remains extremely skeptical of the deal. With the original closing date only about two months away, ODP’s stock is still well below the buyout price.
That dynamic could be changing, however, as late yesterday news broke that the FTC may have pressured an Amazon executive to testify to things he did not believe to be true.
As of this writing, Wayne Duggan was long HAL.
