Mergers and Acquisitions — The 5 Biggest Deals of Q2

Mergers and acquisitions continued to run at a red-hot pace in the second quarter with no sign of a let up. Heck, we’re not even halfway through 2014, and already the total value of global deal activity is at $1.75 trillion, according to Dealogic — a buyout pace not seen since the pre-crisis days of 2007.

mergers and acquisitions, buyoutsThe mergers and acquisition frenzy was so intense in the second quarter that some of the most exciting deals were the ones that didn’t get done — like Pfizer’s (PFE) failed $119 billion bid for AstraZeneca (AZN), or AbbVie’s (ABBV) pursuit of Shire (SHPG) for $46 billion.

Just think of all the handwringing and hype devoted to Apple (AAPL) and its buyout of Beats. The deal dominated the headlines, and yet — at $3 billion — was so comparatively small it didn’t come close to cracking the list of biggest mergers and acquisitions of the second quarter.

Indeed, Apple would have had to shell out nearly five times as many billions to make the list of top mergers and acquisitions for the April-June period — and that’s counting only deals in which at least one company had a listing on a major U.S. exchange.

Just have a look at the top five mergers and acquisitions in the second quarter:

Top Mergers and Acquisitions: General Electric (GE) and Alstom

mergers and acquisitions, buyoutsGeneral Electric’s (GE) bid to acquire most of Alstom’s energy business may have put a dent in French national pride at first (Alstom is sort of the GE of France), but it was nothing $13.5 billion couldn’t fix.

If there’s a worry for GE shareholders, it’s that most mergers and acquisitions don’t quite work out as planned — and integrating Alstom could be a bigger headache than most, given the French take on capitalism.

GE intends to make “a globally competitive power and grid enterprise,” but to do so, it must collaborate with French government regulators and work councils representing some 15,000 Alstom employees. Should be interesting.

Top Mergers and Acquisitions: Bayer (BAYRY) and Merck (MRK)

mergers and acquisitions, buyoutsPharmaceuticals and healthcare deals have dominated the M&A landscape since last year, so it’s no surprise Bayer’s (BAYRY) $14.2 billion buyout of Merck’s (MRK) consumer care business makes the list.

As we wrote at the time, with brands including Claritin, Coppertone, Dr. Scholl’s and Tinactin, the MRK consumer business is considered to be a crown jewel in the industry. That’s why Bayer bought it.

Merck, meanwhile, needs the $8 billion to $9 billion it expects to net from the sale to acquire or develop new blockbuster drugs to replenish its pipeline (and to quiet restive shareholders with buybacks and dividend hikes).

Top Mergers and Acquisitions: Novartis (NVS) and GlaxoSmithKline (GSK)

mergers and acquisitions, buyoutsThe aborted Pfizer bid for AZN means that the pharma industry’s largest consummated deal came only to $20 billion. That’s the total value of assets that Novartis (NVS) and GlaxoSmithKline (GSK) agreed to swap in what amounted to major restructurings for both firms.

Novartis bought GlaxoSmithKline’s cancer drug business, GSK took Novartis’s vaccine business, and the companies agreed to combine their respective over-the-counter and consumer drug businesses. Whew.

All the big pharmaceuticals players are desperately trying to “focus” their businesses (read: cuts costs until revenue comes back), and — on paper, at least — this deal makes sense.

Top Mergers and Acquisitions: Medtronic (MDT) and Covidien (COV)

mergers and acquisitions, buyoutsAmong all the M&A in the healthcare industry in Q2, none was larger than the $42.9 billion in cash and stock Medtronic (MDT) splashed on Ireland’s Covidien (COV) — but this was no mere merger of medical device makers.

True, by adding Covidien’s portfolio of hospital supplies to its armory, Medtronic is better able to compete with top dog Johnson & Johnson (JNJ) in the medical device business. But in reality, this was all about taxes.

For tax law purposes, the combined company will be based in Ireland. Since U.S. companies don’t like bringing profits earned overseas back home because of the tax hit, the deal should free up cash. Don’t be surprised if Medtronic stock buybacks and dividend hikes soon follow.

Top Mergers and Acquisitions: AT&T (T) and DirectTV (DTV)

mergers and acquisitions, buyoutsThe biggest deal of the second quarter was AT&T’s (T) acquisition of satellite-TV provider DirectTV (DTV) for $48.9 billion. Given the tsunami of consolidation washing over sector, this deal was no surprise. Indeed, when it comes to mergers and acquisitions, AT&T almost had no choice.

Not after No. 1 telco Verizon (VZ) bought out Vodafone’s (VOD) 45% take in Verizon Wireless for $120 billion last year, and Comcast (CMCSA) dealt $45.2 billion for Time Warner Cable (TWC) in Q1.

It’s not just that these comms companies need to bundle services for internet, phone, wireless and television to compete — they also need to bulk up in order to negotiate fees with media giants like Walt Disney’s (DIS) ESPN. Don’t be surprised if the sector delivers up some more big mergers and acquisitions in the third quarter — and beyond.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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