Daily Brief: If The Megadeals Go Down, They’re Taking The Rest Of The M&A Market Down With Them

Daily Brief: If The Megadeals Go Down, They’re Taking The Rest Of The M&A Market Down With Them

over 1 year ago3 mins

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Data out on Thursday showed that so-called “megadeals” – those worth over $10 billion – have kept the merger and acquisition (M&A) market in one piece this year.

What does this mean?

The value of global dealmaking hit its highest since records began last year, thanks to booming markets and government support that left businesses flush with cash. But what a difference a few months make: scandalous inflation, gung-ho interest rate hikes, and the outbreak of war have rattled investors and wiped out corporate confidence. That’s encouraged more and more companies to hoard cash, which is partly why the value of abandoned deals is the highest it’s been since before the pandemic. Then again, there has been one saving grace in the form of the 25 megadeals announced in the first half of the year. That’s 12% more than over the same period in 2021, and means the total value of dealmaking has only fallen short by around 20%.

Megadeals

Why should I care?

Zooming in: All eyes on Twitter.

Some analysts see the reliance on megadeals as risky, given that their collapse – entirely possible in light of US regulators’ increasingly hardline approach – could take the entire M&A market down with them. They’re right to be nervous: Elon Musk has repeatedly threatened to walk away from his $44 billion Twitter deal, and chipmaker Broadcomwill probably have to undergo lengthy investigations into its $69 billion bid for software provider VMware.

The bigger picture: Just you wait.

These megadeals have also benefited global investment banks – which earn a fee for dealmaking advisory services – at a time when revenue from their bond and stock trading segments has plummeted by 26% and 72%. But here’s the problem: dealmaking activity tends to trail overall stock market performance by a few months, and the stock market – you may have noticed – has been on a downward spiral. That suggests M&A activity will probably suffer soon too, and investment banks along with them.

Investment bank revenue

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Russia’s Gazprom Upended Its Once-Generous Dividend Policy

Gazprom image

Russian natural gas giant Gazprom canceled its dividend entirely on Thursday.

What does this mean?

Gazprom announced a dynamic new dividend policy back in 2019, which involved paying shareholders as much as half of its total profit by 2022. You had investors at “dividend”: they dramatically pushed up Gazprom’s stock and made it the most valuable company in Russia. Gazprom was well on track to make good on its promise too, with the company’s board members recommending a record payout of around $23 billion this year.

But investors’ giddy hopes were dashed on Thursday, when the company said it would be paying… nothing. Nada. Squat. It said it would rather focus on investing in Russia’s gas infrastructure ahead of the winter, and that it needed the money to cover its tax bill. Hell hath no fury like an investor scorned: Gazprom’s stock plunged nearly 30%.

Gazprom stock

Why should I care?

Zooming in: Russia’s okay with it.

The Russian government – which owns around 50% of Gazprom – will miss out on its share of the payout too, but it’s just smug that the decision will keep cash out of the hands of other shareholders. And the country will still get its hands on some of those profits in any case, with Russian lawmakers having just passed a bill to increase Gazprom’s tax bill by $8 billion this year. The G7 might’ve seen this coming: it recently agreed to explore capping the price of gas to keep the country from profiting even more from the war.

The bigger picture: Uniper hemorrhages money.

Gazprom has unsurprisingly been slashing its supplies to Europe, which has forced Uniper – Germany’s biggest buyer of Russian gas – to buy gas in the open market for an estimated $30 million a day. That’s partly why the company has just issued a profit warning, with things now so bad that the firm’s in talks to be bailed out by the government.

Gas from Russia
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