Let's Make A Deal
Companies end the year with a flurry of big-ticket mergers
Wall Street is popping its champagne early. Merger madness is alive and well as the New Year approaches. The Chinese might call 2006 the year of the dog. But in Lower Manhattan, it might turn out to be the year of the bull.
The deal-making spans many industries--and few may be immune to the animal spirits of matchmakers. Houston oil and gas giant ConocoPhillips plans a $35.6 billion hookup with Burlington Resources, a large gas exploration and production company. Defense firm General Dynamics is planning to shell out $2.2 billion for information technology firm Anteon International.
Reports have Florida Power & Light closing in on fellow utility Constellation Energy in an $11 billion deal. And Tinseltown's penchant for happy endings has Viacom's Paramount Pictures ( The Godfather and Saturday Night Fever among its classics) paying $1.6 billion for DreamWorks SKG, the movie house behind blockbusters Gladiator and Saving Private Ryan.
Global record. Even before those deals were announced, 2005 was a ban-ner year for mergers and acquisitions, with $2.8 trillion of global deals, according to Dealogic, a provider of capital markets data.
That's the best haul since 2000, but it may be just a down payment. "There are a lot of signs that 2006 could be a record year," says Robert Teitelman, editor in chief of The Deal magazine. He attributes the corporate shopping binge to strong profits and antsy investors, especially hedge funds, which are encouraging companies to make bold moves.
Also, with consumer spending and the economy expected to slow a bit in 2006, there's a desire to keep the good times rolling through other means. "They want to keep the growth going and keep investors happy," says Eric Thorne, a portfolio manager at Bryn Mawr Trust, which manages $2.3 billion in assets.
Thorne expects high fuel prices to drive more transactions in the energy sector, with midsize firms like Marathon Oil and Devon Energy proving attractive to majors such as BP and Chevron. Despite Johnson & Johnson's difficulty closing a deal with Guidant, other medical device players will most likely execute deals. St. Jude Medical, a St. Paul, Minn., cardiovascular device maker, is a probable target.
Investors can also expect big announcements in the technology sector, says Thorne. Microsoft is sitting on an Everest of cash and has been rumored to be mulling over a rival bid for Scientific-Atlanta, the cable TV box maker, which has already struck a deal with Cisco Systems. "Or think about a company like IBM," says Thorne. "What's their next act?" The new year will tell.
This story appears in the December 26, 2005 print edition of U.S. News & World Report.
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