With corporate mergers and acquisitions in the doldrums of the post “great financial recession” aftermath, the increasing possibility of U.S. government action against the “tax inversion” dodge seems to have quickened a new wave of mergers and acquisitions.
Worldwide, $1.6 trillion in mergers and acquisitions have been reported so far this year through the end of September, according to data publicized by Thomson/Reuters new syndicate. This is the most since the $3.2 trillion seven years ago just before the mid-2008 financial crash brought a decade of frantic mergers and acquisitions to a practical halt. Significant among these new M&A outbursts is that these deals are bigger and more comprehensive than any seen since 2007.
Among the various industrial sectors, health care seems to have taken a front-row seat, generating a record $370.9 billion in deals or takeovers waiting to be closed.
U.S. companies, hoping to get in under the wire of “tax-inversion” punitive government action, are eyeing new headquarters relocation areas, especially in such low corporate tax centers as Ireland and the Netherlands. Switzerland has lost its popularity, primarily due to the controversial secrecy malefactors which had been thoroughly investigated due to alleged cooperation with the Nazis during World War II.
While no final rules clipping the wings of “tax inversion” have been issued as of yet by the U.S. Treasury, the attendant negative publicity, together with its politicization by Congress, likely will make inhibitive action enforceable by the end of the year.
In viewing major recipients of some of the larger M&A global deals, China, France and South Korea appear to be at the forefront, while Germany, Japan and especially Russia, hit by increasing sanctions due to the Ukrainian confrontation, are lagging.
Media companies seem to be the latest capturing M&A headlines. Comcast’s proposed $45 billion acquisition of Time Warner Cable and AT&T’s $485 billion price tag for DirecTV are two of the largest now in the works.
And with the U.S. stock markets reaching new highs, winners such as Facebook are now using their attractive values for “paper transactions.” A pending estimated $19 billion acquisition of “WhatsApp” is now in the works. It’s primarily based on the “red-hot” Facebook stock.
In the energy sector, pipeline conglomerates owned by Kinder-Morgan are getting a jump on the badly-needed pipeline infrastructure by paying $44 billion to consolidate several of its whole or partially-owned branches. This will get a jump on President Obama’s long-awaited infrastructure update, urgently needed by relocations to accommodate the incremental shale fracking expansion, which is out of sync with current pipelines.
Secret growth weapon
Although most of the hype regarding U.S. natural gas potential is related to central and Western Europe’s dependence on Russia’s pipeline monopoly and the possibility of eventually replacing this dependence with liquid natural gas, the time factor involved in making this evolution practicable could still be up to five or 10 years in the making.
Currently, government approval has been rendered to a half-dozen port facilities necessary to begin these exports in earnest — not to mention the conversion equipment needed to instigate the evolution from gaseous to liquid state. However, to put the impressive potential of liquid natural gas into perspective, its global volume usage is practically unlimited with coal the main power generator for electric utilities still being used worldwide.
Even China, the world’s largest user of coal for power-generating purposes, is now seeking to cut back as its major metropolitan areas are asphyxiating from industrial coal use while natural gas is not yet in ample supply for replacement. To make the liquid natural gas case even more cogent is the fact natural gas is the only meaningful replacement for power-generated coal use throughout the world. While the United States’ ongoing price hangs in around $4 per million Btu, prices in such diverse major industrial nations (United Kingdom, Japan, Germany and most of western and central Europe) range from $9 to more than $10 per million Btu.
As if exports weren’t enough justification for a full-court press on LNG development, domestic U.S. production and consumption holds forth almost unlimited opportunities.
In the past six years, the outburst of natural gas released along with shale-processed crude oil is now no longer flared off, but contained as feed stock for major chemical producers. Several of these have returned their production facilities from overseas back to the U.S. due to the lower manufacturing cost that cheap American-provided natural gas surpluses provide.
Added to this demand is the forced conversion from coal to natural gas by America’s far-reaching utility systems, which are required to eliminate coal in utility plants under construction and on the drawing board. This alone will greatly increase domestic natural gas demand in the foreseeable future. The U.S. Energy Information Agency, which normally is conservative in its future demand speculation, projects expected future natural gas demand to mandate a minimum 5% increase over today’s usage in 2015 alone. But this may only be the beginning if all other aspects of natural gas potential mentioned herein emerge by the next year as expected.
Small businesses left behind?
In my many contacts with small businesses throughout the U.S., I’ve become increasingly aware these rugged individualists, mostly comprised of independently owned regional plumbing-heating-cooling-piping distributors and substantial mechanical contractors focusing on commercial and industrial construction, possess an almost universal attitude of federal agency disinterest, even considered antagonistic by many contacted.
The consensus of the attitudes by these mostly independently owned business entities seems to indicate disproportionate partisanship by U.S. government agencies and financial institutions that tend to favor large corporations, especially those listed on the public stock exchanges.
The rising concern of this huge middle-class business segment, which comprises much of the positive dynamic in the currently lackluster pace of U.S. economic growth, is supported by a rash of concerned comments. These indicate big corporations as well as labor unions have been given Obamacare deferment, and have not been disproportionately saddled with oppressive financial regulations.
The most vociferous complaint relates to a federal minimum wage hike from $7.75 to $10.10, which could have deleterious consequences for many of these small businesses. They believe every additional dollar spent makes their competitiveness increasingly difficult. This comes at a time that the major corporations are not only opening up overseas branches, but are moving to lower-cost states, with California and Texas ranking as the most prolific examples.
By the nature of distributors, their commitment is not only related to the particular district or region in which they operate, but to maintaining 100% of their employment and sales revenue in the U.S. What further frustrates owners of the many distributors and owners with whom I have been in touch is they rightfully complain of having no recourse while their major-sized corporate competitors have the benefit of lobbies that influence congressional as well as administration-issued legislation.
Most managers and owners of these small businesses feel they have been victimized rather than facilitated by heavy-handed government agencies, such as the Environmental Protection Agency from which there is no appeal.
Unfortunately this has engendered expressions of sellouts or liquidation by multigenerational leadership that have provided the vast plumbing-heating-cooling-piping industry with a nationwide independent marketing leadership matrix, whose decades of experience and interface with customers and prospects will forever be lost if and when these “titans of industry” depart from the scene.