MID-YEAR ROUND UP: The Biggest US Mergers and Acquisitions So Far in 2014
2014 has already delivered mergers and acquisitions of epic proportions, with more to come in the next few months. But where top competitors are concerned, regulation is the name of the game, and a few high-profile deals are still pending federal approval. Here are a few champions and contenders of note.
American Airlines and US Airways
The merging of American Airlines and US Airways has successfully created the largest airline in the world. The newly formed American Airlines Group will provide nearly 6,700 daily flights to more than 330 destinations in more than 50 countries.
Last year, the Department of Justice filed a suit to stop the merger out of concern that it would lead to decreased competition and increased fares. The lawsuit was settled under the terms that American Airlines Group sell their landing slots or gates at seven major airports, some of which will be reserved for low-cost carriers.
Doug Parker, CEO of American Airlines who formerly served as the chairman and CEO of US Airways, commented on the merger by saying, “Our people, our customers and the communities we serve around the world have been anticipating the arrival of the new American.” The company expects the merger to be completed in January of 2016. In the interim, both airlines will continue to offer perks to their customers, and beginning in 2015, they will combine the mileage balances of frequent fliers who have accounts with each airline.
Sprint and T-Mobile
In a proposed $32 billion deal, the two telecommunications giants could merge by the year’s end. The preliminary terms state that Sprint would acquire T-Mobile for about $40 a share. Sprint is currently the third largest U.S. wireless network operator and T-Mobile is the fourth.
The merger would create a formidable competitor for Verizon and AT&T, both of which currently serve over 100 million subscribers. The deal could also be subject to antitrust regulation via the Justice Department, already heavily considering the implications of potential high-profile mergers happening elsewhere. AT&T attempted to acquire T-Mobile in a similar deal back in 2011, but regulators prevented it due to concerns over how the merger might limit consumer choices.
The two companies have yet to draft a definitive agreement or arrange financing. But should the deal not go through, early terms include a $1 billion “break up fee” that Sprint would pay T-Mobile. If the merger is a go, it is likely to be announced in July.
Facebook and WhatsApp
In February, Social media giant Facebook acquired WhatsApp for $19 billion. The acquisition marked the largest purchase of a company backed by venture capitalists in history. The company was founded in 2009 and has added roughly 100 million new users each year. Currently, WhatsApp has more than 500 million users and handles 50 billion messages each day. In regard to WhatsApp’s incredibly fast growth, Facebook CEO Mark Zuckerberg said, “No one in the history of the world has done anything like that.”
WhatsApp is a messenger service that allows smartphone users to text via their cell phone numbers. The messages are sent over mobile broadband, so they do not register as text messages, clearing the way for users to message freely—even internationally—without the danger of exceeding their message limit and incurring overages. This makes the app invaluable to constant correspondents and those communicating overseas. The acquisition allows Facebook to extend itself beyond its primary site and break into developing markets.
Comcast Corporation and Time Warner Cable
In a move that could potentially impact the future of cable and broadband, Comcast Corporation has offered to buy Time Warner Cable for $45 billion.
Presently, the deal states that each of Time Warner Cable's current 284.9 million shares will be exchanged for 2.875 million shares of Comcast's CMSCA stock. Comcast will also sell 1.4 million Time Warner Cable subscribers to Charter Communications for about $7.3 billion. 2.5 million subscribers would then be divested to a new public company. Comcast shareholders would own 66 percent of the company while 33 percent would be owned by Charter, with Charter in charge of managing the new network and customers. Comcast and Charter would trade about 1.6 million subscribers throughout the country.
The deal would make Charter Communications the second-largest cable provider in the United States and ultimately increase their subscriber base from 4.4 to 8.2 million households. Of course, Charter’s involvement in the deal is contingent upon whether or not the initial Comcast-Time Warner merger succeeds. The acquisition is subject to regulation and is currently under review by the Federal Communications Commission and the United States Department of Justice.
AT&T and DirecTV
Rivaling the Comcast and Time Warner deal is AT&T’s proposed merger with DirecTV, currently the biggest satellite television operator in the United States. The deal could potentially be worth $48.5 billion. DirecTV shareholders will receive a total of $95 per share, with $28.50 to be paid in cash and $66.50 paid in stock. The proposed deal is the largest in several years for AT&T. The company’s last substantial transaction attempt was their failed acquisition of T-Mobile.
AT&T and DirecTV claim that the merger would enable them to lower their prices for satellite television and high-speed Internet bundle packages, pressuring cable companies to lower their rates as well. They also insist that if Comcast and Time Warner successfully merge, they will need suitable competition to keep from becoming a monopoly. AT&T and DirecTV presented both arguments in filings with both the FCC and the Department of Justice. As a condition to merger approval, AT&T pledged to extend fiber high-speed Internet services to 2 million more customers. It also promised to bring wireless high-speed Internet to 13 million largely rural customers outside of areas that the company already serves.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.