Market commentary: M&A: Dell and AB InBev in the spotlight

The week started with a retreat in the equity markets, as investors exercised some profit taking following last week’s rebound that pushed stock indices across the globe to close higher on Friday. 

European equities opened lower this morning, with most of the major markets losing over 1%, extending the weakness experienced by Asian markets, which saw the Nikkei 225 closing 1.11% down, the Australian S&P/ASX 200 closing 0.62% lower and the Shanghai Composite Index closing less than two tens of a percentage up.

US equities turned positive in the later part of the afternoon session on Monday, after trading in negative territory for most of the day. Today’s futures are pointing to another weak opening for all the major American equity indices, suggesting market will experience another volatile session.

While traders have been dealing with choppy trading, investors are focusing their attention to several prominent M&A news, such as the unexpected acquisition of EMC Corp. announced by Dell and the reaching of a formal takeover agreement between AB InBev and SABmiller.

Dell Inc., one of the largest computers’ makers in the world, announced yesterday that it is going to buy ECM Corp., one of the major makers of data storage and computer servers’ software and equipment. The cash and stock deal has been valued at around USD 67 billion, making the takeover the largest M&A deal within the technology sector.

Dell Inc., which was taken private by its founder Michael Dell in 2013, is now attempting to shake off declining revenues and a shrinking market for laptop and desktop computers, by expanding into the data storage and management business, which has been exponentially growing along with the advent of social media and e-commerce.

Available details on the structure of the deal seem to indicate that the takeover will be mainly financed by three major entities: Michael Dell’s investment vehicle MSD Partners, private equity firm Silver Lake (which also co-financed the privatization of Dell Inc. in 2013), and Singapore state-owned investment company Temasek Holdings. In addition to cash in hand and shares in tracking stock VMware, Dell’s founder is planning to tap the debt market to fill the financing gap, bringing to the high yield space a new prominent issue.

Although Dell took the spotlight worldwide by announcing a takeover that will create the world largest privately held technology company, today, European investors redirected their attention to the ongoing merger’s negotiations between AB InBev and SABmiller, after the former announced to have finally reached a formal agreement to buy UK-based SABmiller.

The agreement comes after the UK brewer rejected two previously offered deals and the US giant increased its latest bid to GBP 69 billion. The newly combined entity will create an unmatched champion within the alcoholic beverage sector, controlling the largest market share in almost 24 out of the 30 largest beer markets across the globe.

The long speculated merger will also surpass the this year’s acquisition of BG Group Plc by Royal Dutch Shell Plc. to become the largest UK’s M&A transaction on record, rising the investment banking profile of London as a financial and banking hub.

This article was issued by Paolo Zonno, Trader/ Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.