New Year Brings Deal Flurry In Europe -- WSJ
January 20 2017 - 3:03AM
Dow Jones News
Safran's Zodiac tie-up is latest in spate of multibillion-dollar
transactions this week
By Ben Dummett
Another day, another deal.
Safran SA's EUR8.5 billion ($9 billion) tie-up with Zodiac
Aerospace is the third multibillion-dollar European transaction
announced this week, taking the value of agreed deals in the region
so far this year close to $100 billion.
However, bankers say it is too early to tell whether the spate
of deals signals a marked and sustained upturn in activity from
last year.
This flurry of deals, which include British American Tobacco
PLC's $49.4 billion transaction to take full control of Reynolds
American Inc., and the merger of Italian and French eyewear
companies Luxottica Group SpA and Essilor International SA, comes
as European companies face profitability challenges due to muted
economic growth.
In November, the European Union lowered its 2017 economic growth
forecast for the region to 1.6% -- 0.3 percentage point lower than
previously projected -- in part because of the U.K.'s decision to
leave the European Union.
In response, some companies are turning to acquisitions to cut
costs, generate new sources of revenue and eliminate potential
competition. Investors are rewarding these moves by boosting the
companies' share prices.
So far this year, announced M&A deals involving European
companies have totaled $47.2 billion, more than twice the
corresponding figure for a year earlier of $19.6 billon, according
to Dealogic. This year's data excludes the BAT-Reynolds deal
because the original offer was made last year.
Paulo Pereira, a partner at investment bank Perella Weinberg
Partners, cautioned against drawing any conclusions about the
M&A outlook for Europe so early in the year. He also noted that
geopolitical and political events can have a "sobering" effect on
dealing making, but says "transactions that have clear strategic
rationale and clear synergies will continue to be pursued," Mr.
Pereira said.
Severin Brizay, the head of M&A for Europe, the Middle East
and Africa at Swiss bank UBS, suggested that the series of deals is
the continuation of a trend of sustained activity in the fourth
quarter of last year.
The Safran-Zodiac deal is designed to give the companies
additional scale to absorb pressure from the world's largest
airplane makers for supplier discounts, as Boeing Co. and Airbus SE
seek to win new plane orders by offering air carriers lower prices.
Safran, a maker of aircraft engines and other equipment for the
aerospace sector, estimates the deal will generate EUR200 million
of annual pretax cost savings over the long run and boost per-share
earnings.
Meanwhile, BAT's deal to acquire the 57.8% of Reynolds it
doesn't already own gives the U.K. tobacco company's Kent brand the
opportunity to expand in the U.S. while allowing U.S.-based
Reynolds the chance to grow its Newport brand overseas.
In the case of Luxottica and Essilor, the planned merger gives
the combined company about 27% of the eyewear market and guards
against the two competing against each other. Ray-Ban maker
Luxottica had been expanding into Essilor's market of optical lens
manufacturing while Essilor was moving to compete against Luxottica
in frames.
Write to Ben Dummett at ben.dummett@wsj.com
(END) Dow Jones Newswires
January 20, 2017 02:48 ET (07:48 GMT)
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