Ravi Madhavan's A&D Blog

Eaton buys Cooper Industries

In B-school strategy classes, the Cooper Industries company has been a mainstay case study for teaching about corporate strategy. Those discussions will now need a major update, as Eaton has acquired Cooper Industries for over $11B. BusinessWeek story here. A key feature of the deal for Eaton appears to be that the combined company will be domiciled in Ireland (which has low corporate taxes), which is where Cooper Industries is registered.

Milken Institute panel on M&A outlook

Here. 

Warren Buffett's media move

Interesting deal - in its second transaction in the media space within six months, Buffett's Berkshire Group bought a portfolio of 60+ newspaper properties from Media General. NYT story here. From what we know about Buffett, it's unlikely he's betting on creating value via a technology upgrade (e.g., by evolving the local newspapers into the world of "new media.") Berkshire Hathaway's acquisition criteria are listed here. Is this a "last iceman" strategy? Or merely a reflection of a personal bias? Excerpt from the same NYT story.

The billionaire has often reminisced about being a paperboy in his youth — a newspaper tossing competition featuring Mr. Buffett and his friend Bill Gates was one of the highlights of the investor meeting — and waxes nostalgic about the decline of newsprint.

 

Roundup

Lots of interesting stuff on the "airwaves" today, here's a selection:

NYT has summary graphics, based on Thomson Reuters data, of M&A activity in 2012 Q1: down 34% at $481B worldwide.

NYT DealBook's Deal Professor on how Google's Motorola Mobility buy is awaiting approval from China's anti-trust authorities.

WSJ conducts a scenario analysis on Greece's future in or out of the EU.

MetroPCS - T-Mobile

An analyst report on the the idea of MetroPCS merging with T-Mobile has the transparent title “Oh My, What an Ugly Baby,” writes WSJ's Deal Journal. 

One interesting deal and another potential one

Asahi to buy Japanese milk beverage company Calpis for $1.5B, NYT report here. A key driver is described as follows (excerpt):

Like other Japanese brewers, including Kirin, Orion, Sapporo and Suntory, Asahi is dealing with the challenges of an aging and shrinking population at home, which has led to declining beer sales in Japan. 

Some background about Japan's demographic challenge here. 

This morning, there was news about another interesting deal in the works - move theater chain AMC (owner of Loews cinemas) is reportedly taking to a Chinese buyer about a sale, which may be full or partial. NYT report here.

Watson/ Actavis

Another consolidation deal in the generics pharma space yesterday, with US-based Watson Pharma buying the Swiss Actavis: summary facts, NYT DealBook story, analyst presentation. The messaging stresses the scale/ consolidation rationale, as illustrated by the following slide, as well as the management team's track record in integrating past deals. (For background on consolidation in generics, see this Goldman Sachs report - dated by now, but lays out the drivers of consolidation.)

USAir/ American Airlines?

The possibility of a USAir bid for American Airlines appears to have strengthened - stories from Washinghton Post and Forbes, respectively, on how USAir has won pre-approval from American Airlines unions.

On a related note, interesting stories from Washington Monthly and WaPo, respectively, about cities abandoned by airlines (including Cincinnati and Pittsburgh) which then also lose businesses because business travel becomes difficult. When airlines were regulated, the premise was that air service was essentially a "utility," and the Civil Aeronautics Board would set routes and fares. Now that airlines are free to set routes and fares, many mid-tier and small cities are experiencing dwindling air connections. 

Amazon/ Kiva

Amazon's acquisition of robotics firm Kiva Systems (NYT DealBook story here) is a bit of a head-scratcher! Granted, Amazon relies on Kiva Systems' automation in its warehouses, and more broadly, warehouse automation is likely  a growth segment worldwide. (Earlier this month, I visited a fully automated warehouse in Sao Paulo, Brazil - at cosmetics firm Natura's main facility.) But why would Amazon need to buy its supplier of warehouse robots? As this Breakingviews entry put it, "it’s not obvious that Amazon needed to buy the cow when it could just purchase the milk." I'm not sure what Kiva Systems' financial and managerial strengths/ weaknesses were, but could this have been a bailout of a strategic supplier?

UPS/ TNT deal reached

UPS and TNT Express have concluded an acquisition deal, here is the WSJ report. I think two immediate points are important: One, this represents a judgment on the part of UPS that Europe is rebounding; two, I wonder what the impact on FedEx would be. Excerpts from the WSJ story, first related to optimism about Europe:

But with concerns about the financial stability of Europe receding lately, UPS was emboldened to do a deal that, besides rounding out its global footprint, will generate some €400 million to €550 million a year in pretax cost savings, according to the U.S. logistics company.

Second, related to FedEx:

The deal is likely to refocus attention on Memphis, Tenn.-based FedEx, which had been monitoring the situation since TNT Express first disclosed the UPS approach last month, according to people familiar with the situation.

But FedEx has less financial firepower than UPS as it continues to modernize its aircraft fleet. Whether the deal would compel FedEx to join forces with another competitor is unclear, although analysts and investors are expected to question FedEx officials about that when the company reports its quarterly earnings Thursday.