Friday, 20 January 2017

A year in deals: bring your M&A-game

By Nick Wood, Total Telecom
Tuesday 20 December 16

The telco industry's dealmakers were out in force in 2016, as players sought greater scale or eyed opportunities in adjacent markets.

With the year rapidly drawing to a close, it is time to look back at some of the industry's biggest transactions, and what happened after pen was put to paper. The following are not necessarily the most financially-valuable deals, but they are certainly some of the most significant in telecoms this year. AT&T to acquire Time Warner for $85.4bn THE DEAL October: AT&T agreed to pay $107.50 per share for Time Warner, comprised of $53.75 per share in cash and $53.75 per share in AT&T stock, implying an equity value of $85.4 billion. That rises to $108.7 billion when Time Warner's debt is included. After the deal closes, Time Warner shareholders will own 14.4%-15.7% of AT&T shares. LATEST DEVELOPMENTS After the election of a certain thin-skinned, impossibly-coiffured billionaire in November, it is anyone's guess as to what will happen with this one. Before his surprise victory, Donald Trump said he would block the AT&T-Time Warner tie-up, because such deals are bad for democracy. However, Trump hasn't even been sworn in yet, and we already know that what he says he will do, and what he actually does…

With the year rapidly drawing to a close, it is time to look back at some of the industry's biggest transactions, and what happened after pen was put to paper. The following are not necessarily the most financially-valuable deals, but they are certainly some of the most significant in telecoms this year.


AT&T to acquire Time Warner for $85.4bn

THE DEAL
October: AT&T agreed to pay $107.50 per share for Time Warner, comprised of $53.75 per share in cash and $53.75 per share in AT&T stock, implying an equity value of $85.4 billion. That rises to $108.7 billion when Time Warner's debt is included. After the deal closes, Time Warner shareholders will own 14.4%-15.7% of AT&T shares.

LATEST DEVELOPMENTS
After the election of a certain thin-skinned, impossibly-coiffured billionaire in November, it is anyone's guess as to what will happen with this one. Before his surprise victory, Donald Trump said he would block the AT&T-Time Warner tie-up, because such deals are bad for democracy. However, Trump hasn't even been sworn in yet, and we already know that what he says he will do, and what he actually does, can be very different.


Qualcomm ramps up IoT strategy with $47bn NXP acquisition

THE DEAL
October: Qualcomm launched a tender offer to acquire all of NXP's issued and outstanding shares for $110 per share. The transaction will be funded through a combination of cash on hand and new debt.

LATEST DEVELOPMENTS
With the deal being agreed fairly late in the year, there is still a long way to go before it closes. Qualcomm officially launched its tender offer in the second half of November; the offer does not expire until 6 February 2017. By then we will know exactly how NXP's shareholders feel about Qualcomm's offer. After that, there is the not-so-small matter of gaining approval from U.S. competition watchdogs. Qualcomm hopes to complete the deal by the end of 2017.


CenturyLink, Level 3 confirm $34bn merger

THE DEAL
October: Level 3 shareholders were offered $26.50 and 1.43 CenturyLink shares for each share they own, implying a purchase price of $66.50 per Level 3 share. The offer represented a 42% premium on Level 3's closing share price on 26 October, which was just before the deal rumours emerged. The deal is expected to close by the end of the third quarter of 2017, at which point CenturyLink will own 51% of the merged entity, and Level 3 will own the remaining 49%. CenturyLink is funding the takeover through a combination of cash on hand and $7 billion of new debt.

LATEST DEVELOPMENTS
CenturyLink and Level 3 submitted their proposed merger to the U.S. Federal Communications Commission on 14 December, so from a regulatory standpoint, there is still a lot of ground to cover before this deal is done and dusted.


Softbank agrees €28.8bn acquisition of ARM

THE DEAL
July: Softbank agreed to pay €20 per share for the entire issued and to-be-issued share capital of ARM. The offer represented a 43% premium on ARM's closing price the Friday before the deal was announced. At least 75% of ARM shareholders needed to vote in favour of the deal for it to become effective.

WHAT HAPPENED NEXT
ARM shareholders overwhelmingly backed the Japanese telco's offer despite dissenting voices decrying the sale of the U.K.'s biggest tech firm to a foreign company. Softbank completed the takeover in September.

LATEST DEVELOPMENTS
Softbank CEO Masayoshi Son said the ARM deal would put his company at the heart of the IoT, so we expect to see many more pronouncements along these lines in the coming year. Meanwhile, the U.K. government – which at first welcomed Softbank's purchase of ARM – has changed its tune slightly since then. In November's autumn budget statement, Chancellor Philip Hammond said he wants to tackle the "longstanding problem of our fastest-growing technology firms being snapped-up by bigger companies, rather than growing to scale."


Microsoft to acquire LinkedIn for $26.2bn

THE DEAL
June: Microsoft fought off CRM specialist Salesforce to land the professional social networking service, with an offer funded primarily by new debt. The U.S. software giant said it planned to integrate LinkedIn with its Productivity and Business Processes division, which includes its Office software for both consumer and enterprise clients, Skype, its OneDrive cloud storage service, and its Dynamics CRM solution.

WHAT HAPPENED NEXT
Microsoft had to convince the European Commission that the deal would not harm competition in the market for professional social networking. This was partly because months after the LinkedIn deal was announced, competition commissioner Margrethe Vestager said that Brussels was considering taking a closer look at mergers and acquisitions involving a large volume of valuable data.

LATEST DEVELOPMENTS
Microsoft's charm offensive paid off, and the EU granted conditional approval to the deal in early December. To safeguard competition, Microsoft Windows PC makers a choice over whether to pre-install LinkedIn, and to allowing customers to remove LinkedIn from their PC should the manufacturer opt to pre-install it. LinkedIn's rivals must also continue to be given the same level of access to, and interoperability with Microsoft Office via APIs and Microsoft's Office add-in programme. In addition, competing professional social networks must also be granted access to Microsoft Graph, an API portal that allows software developers to create apps and services that access user data stored in the Microsoft cloud, such as contact information calendar information, emails, etc. A day after receiving approval, Microsoft completed the $26.2 billion deal.


21st Century Fox agrees €14bn Sky takeover

THE DEAL
December: Rupert Murdoch's media conglomerate agreed a £10.75 (€12.78) per share offer, representing a multiple of 11.4 on the U.K.-based quad-play provider's EBITDA for the 12 months to 30 June, and a 40% premium on Sky's share price on 6 December, the last day of trading before the offer was received. The deal will see Fox acquire the 60.9% of Sky it does not already own.

LATEST DEVELOPMENTS
Shareholders representing 75% of Sky's shares not already held by Fox need to vote in favour of the offer for the deal to go ahead. One unnamed shareholder cited by Reuters, who claims to be one of the company's top 50 shareholders, has already said they plan to vote against the deal because Fox's offer is too low. Meanwhile, Jupiter Asset Management said in a report by the Sunday Telegraph that Sky's directors should push for a higher figure. Resistance by major shareholders, coupled with political reticence stemming from concerns over media concentration, means this deal will be a tough one for Fox to pull off.


Verizon announces $4.83bn Yahoo buy

THE DEAL
July: The deal of the year, for all the wrong reasons, was an all-cash affair. U.S. telco Verizon said it would merge Yahoo's core Internet operations with AOL – which it bought last year for $4.4 billion – to create a mobile advertising powerhouse.

WHAT HAPPENED NEXT?
A complete and utter debacle, that's what. Total Telecom house style prohibits the kind of language that would most aptly describe Yahoo's incompetence, but suffice to say, a shipping container's worth of excrement hit the kind of fan that wind tunnels use to test the aerodynamic efficiency of prototype aircraft. The reason being, Yahoo in September revealed it suffered a hack that compromised the profiles of 500 million members. Said cyber attack took place in 2014. Fully two years earlier. After initially denying any knowledge of the attack prior to the Verizon deal, it emerged in November that certain people in Yahoo became aware of what happened in late 2014.

LATEST DEVELOPMENTS
Just when we thought it couldn't get any worse, in December, Yahoo revealed it was the victim of another attack in August 2013 during which the profile details of more than 1 billion users were stolen. Publicly, Verizon is pushing ahead with the acquisition, but there are widespread rumours that it is seeking a $1 billion discount off the purchase price. Some observers have suggested that Verizon might walk away altogether.


Cisco to acquire Jasper for $1.4bn

THE DEAL
February: Cisco agreed to pay $1.4 billion in cash, assumed equity awards, and retention-based incentives. With 3,500 enterprise customers, 27 operator partners and reach into 100 countries at the time the deal was struck, Jasper represented a great opportunity for Cisco to ramp up its IoT activities.

WHAT HAPPENED NEXT
A fairly straightforward deal, this one: Cisco completed the acquisition in March, and Jasper now forms the kit maker's IoT cloud business unit, which is tasked with helping enterprises, telcos, and ecosystem partners make the most of IoT. Cisco said it also plans to add support for enterprise WiFi, low-power wide-area networking (LPWAN), and advanced IoT security to Jasper's platform.

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