Giant Food Deal Validates Outlook for 2015 Merger Boom: Real M&A
(Bloomberg) — Just when the deal machine seemed to be
slowing down, Warren Buffett and Jorge Paulo Lemann kicked it
back into gear.
Through Tuesday, March had the fewest number of takeovers,
spinoffs and other types of deal announcements since August 2009,
according to data compiled by Bloomberg. The slowdown occurred
despite bankers saying 2015 could be at least as busy as last year,
Their predictions may not be so far off, after all.
On Wednesday, Buffett’s Berkshire Hathaway Inc. and
Lemann’s 3G Capital announced plans to merge H.J. Heinz with
Kraft Foods Group Inc., valuing Kraft at about $46 billion. It’s
the largest deal so far this year, pushing first-quarter volume
above the same period last year and sparking talk of more to
While U.S. stocks are rising to records and takeover
valuations have entered pricey territory, that’s proving no
match for investors’ demand for earnings growth. And companies
across industries are responding by signing deals.
“There are still opportunities available, even with the
stock market hitting all-time highs,” Roy Behren, co-manager of
the $5.5 billion Merger Fund in Valhalla, New York, said in a
phone interview. “We expect deal activity to continue at a very
Kraft surged after the merger announcement, lifting other
food stocks along with it. Still, the transaction isn’t ideal
for merger-arbitrage traders. They typically wager on a spread
between the target’s price and the offer as well as the time to
In the case of Kraft, investors won’t get bought out at a
certain price. Those who hold onto the shares will instead end
up owning a piece of a new, publicly traded company called Kraft
Heinz Co. For that reason, while this merger sends a positive
signal for the remainder of the year’s deal activity, it still
might not be what some investors were hoping to see.
“It’s attractive, but for merger arbs such as ourselves,
it’s not something that can be easily hedged out,” Behren said.
“It should appreciate in price as we move to closing, but
there’s no guarantee. Should the market trade down, this stock
would trade down also.”
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