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Weekly M&A Digest - September 15, 2017

John Shipman, Senior Financial Writer | September 15, 2017

A compendium of highlights and observations from the week’s notable M&A news, compiled by Merrill Corporation which facilitates the sharing and disclosure of financial information in transactions such as these.

Antitrust Tune Changes on United Technologies-Rockwell Collins Deal

Early feedback from Wall Street analysts on United Technologies’ $23 billion buyout of Rockwell Collins (announced Sept. 4) indicated the deal would encounter little regulatory resistance since the two aircraft parts makers had little overlap in the components they produce.

Doubt about those initial assessments is now creeping in, particularly after Boeing expressed its unease with the transaction. Airbus has also signaled that it's not a fan of the deal, and reports suggest the toughest resistance could come from European regulators. Experts now weighing in acknowledge that while there is little overlap, the combination would control a much bigger chunk of the aerospace supply chain.

An EU review may be a large hurdle, “simply on the grounds that the combined company would be so big,” Nick Cunningham, an analyst at UK-based Agency Partners, told Reuters. United Technologies gave up on merger talks with Honeywell in 2016 after deciding a deal wouldn't past antitrust scrutiny.

M&A Weekly Digest September 15, 2017

Contest for Toshiba Memory Chip Business Heats Up 

A group led by Bain Capital signed a non-binding agreement to purchase Toshiba Corp.’s memory chip business. Reports indicate the group is willing to pay about $19 billion, with financial support also coming from Apple and Dell. Bloomberg said Apple may kick in $3 billion. 

The Financial Times pointed out that talks with the Bain-led group broke down during the summer, but revived its prospects with a refreshed offer in recent days. The group is competing for the Toshiba business against a consortium led by hard-drive maker Western Digital and backed by KKR. “Toshiba is under pressure from its main creditors to sign the deal as quickly as possible in order to fill a $4.5bn hole in shareholder equity by March next year, and avoid a possible forced delisting from the Tokyo Stock Exchange,” the FT said.

President Trump Blocks China-Backed Deal for Lattice Semiconductor

Citing national security concerns, President Trump blocked a $1.3 billion sale of Lattice Semiconductor to Chinese investors, heeding a recommendation from the Committee on Foreign Investment in the U.S. In an attempt to save the deal, Lattice had made an unusual – and unsuccessful -- appeal directly to the president to overrule the CFIUS guidance.

Chinese outbound M&A has been slowing after a record-setting level of activity in 2016, and the kibosh on the Lattice deal could add to the deceleration. The Wall Street Journal this week noted buyers from China are finding it increasingly hard to invest abroad amid political and regulatory hurdles, as well as attempts by China itself to cool deal making on concerns about rising debt levels. The Deal suggested Trump's thumbs down on Lattice could lead to "a domino effect of dealmaker's calling off pending transactions" in anticipation they might be blocked, "especially when it comes to national security concerns and China."

Alphabet Mulling Investment in Lyft?

Google parent Alphabet is considering an investment of about $1 billion in Lyft, Uber’s main US rival, according to Bloomberg, citing people familiar with the matter. Alphabet is also an investor in Uber, which is working to steady itself after an extended period of management and legal upheaval.

"It would be a stunning move, given that Google was an early investor in Lyft rival Uber, even though the two companies have since gotten litigious over allegations of trade secret theft," Axios said. Meanwhile, SoftBank is reportedly in talks to take a large stake in Uber, investing as much as $10 billion, but is said to be driving a hard bargain on the size of its potential ownership.     

Centene Buying Fidelis Care for $3.75 Billion

Health insurer Centene agreed to buy Fidelis Care in a $3.75 billion deal that boosts its exposure to New York State. Centene is a large player in Medicaid and Obamacare coverage. It purchased Health Net Inc. in 2016 for $6.3 billion to similarly increase its presence in California.

As noted in the September Merrill M&A Forecaster, the healthcare sector remains a hot spot for deal activity. Consolidation in the sector continues as companies pursue economies of scale to gain greater efficiency and wring out costs. Word also came this week that hospital chain Tenet Healthcare is exploring a possible sale as activist shareholders pressure executives to take steps to boost value.

Pilgrim’s Pride Buys UK’s Moy Park Amid JBS Turmoil

U.S. chicken processor Pilgrim’s Pride bought UK’s Moy Park from parent JBS, in a deal Reuters said helps the Brazilian company make upcoming debt payments amid a bribery scandal that included the arrest of its chief executive this week. JBS, the world’s largest meatpacker also owns roughly 75 percent of Pilgrim’s Pride.

The atypical deal was negotiated and approved by a special committee comprised of three independent board members, Reuters said, citing a Pilgrim’s Pride statement. Federal authorities in Brazil arrested JBS CEO Wesley Batista and his brother Joesley for allegedly using insider trading to profit when a plea deal they signed – related to a bribery scandal involving Brazilian politicians – became public.

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