Why Mega-Mergers Happens End Of The Year?

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Dec 04 2006
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If you ever observe, mega-mergers involving multi-billions takeovers usually happens at the end of every year. Some of the merger and acquisition (M&A) examples:

  • Nov-20-2006: Blackstone Group agreed to buy U.S. office building owner Equity Office Properties Trust (NYSE : EOP) in a deal valued at nearly $19 billion.
  • Nov-2-2006: Drugstore chain CVS Corporation (NYSE : CVS) has agreed to pay $21 billion for pharmacy benefits manager Caremark Rx Inc. (NYSE : CMX).
  • Nov-15-2006: US Airways Group Inc. (NYSE : LCC) made an $8 billion cash and stock bid for Delta Air Lines Inc. (OTC : DALRQ)
  • Dec-16-2005: Global security software maker Symantec (Nasdaq : SYMC) is to take over Veritas Software in a merger deal valued at $13.5bn (£7bn).
  • Dec-15-2004: Sprint and Nextel (NYSE : S)announced plans for a $36 billion merger creating a new major wireless phone power.

The same flu is catching up fast in Asia particularly Malaysia considering the following (confirmed and rumor):

  • Nov-23-2006: Kumpulan Guthrie Berhad (GUTHRIE : stock-code 3131), Sime Darby Berhad (SIME : stock-code 4197) and Golden Hope Plantations Berhad (GHOPE : stock-code 1953) are to merge, potentially create the world’s biggest bio-fuels company and its largest publicly-traded palm oil entity.
  • Nov-27-2006: Kuwait Finance House ( KFH ) has expressed interest in buying a stake in Malaysian financial house Rashid Hussain Bhd (RHB : stock-code 1309) which controls Malaysia’s fourth-largest banking group, RHB Capital (RHBCAP : stock-code 1066).
  • Nov-29-2006: New Straits Times Press Berhad (NSTP : stock-code 3999) and Utusan Melayu (Malaysia) Berhad (UTUSAN : stock-code 5754) are said to be on talk after months of rumor of the said merger, which will create the country’s largest media group.
  • Nov-29-2006: Telekom Malaysia TM (TM : stock-code 4863) is considering a plan to acquire about 42.7 percent stake in Time DotCom Berhad (TIMECOM : stock-code 5031) valued at RM 1.1 billion from its parent Time Engineering Berhad.

According to Thomson Financial, 8 of the 20 largest deals in the last four years have taken place in November and December. Why is this trend so obvious – coincident or valid reason behind this? The answer – due largely to the fat bonuses for all involved in the deal, especially the bankers.

But the counter-argument was these investment bankers themselves don’t collect any fees unless and until the deal is completed, typically months later in the next calendar year. Furthermore approval from regulators could take as long as a year to close.

But many bankers still play what some people in the business called “The Double Bonus Game”. As far as Wall Street is concern a banker can receive a little extra bonus money for a deal announced this year, and get paid a little extra again next year when the deal closes. It’s a way to say “If you don’t pay something this year as recognition, I’ll be scouting for a job in January”.

Most managing directors salaries ar
e at only about $200,000 per annum, so the bonus which averaged at about $1 – $2 million (though some top bankers can easily expect $ 20 million) would mean a lot to their bank accounts.

It seems Asia is catching up fast with this culture from Wall Street if the pace of mergers announcement are anything to go by. How much do you think Nazir Razak, chief executive officer of CIMB Group will be getting looking at the passion he shown in closing the merger of the World’s Largest Listed Oil Palm Company?

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