3 M&A Mega-Deals To Watch For

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Includes: AET, HOG, HSY, HUM, KKR, MDLZ
by: Bhuvnesh Rai

Summary

Mondelez appears prepared to convince Hershey's board with the 'no lay-offs' card.

Aetna is committed, unlike Anthem, which is ready to back out of the Cigna deal due to regulatory headaches.

Just rumors so far, yet Harley-Davidson's attractive valuation makes it a potential buyout target.

As per Dealogic, the number of withdrawn deals have been on the rise through-out the first half of 2016. Among the largest deals which didn't go through, $160 billion deal between Pfizer (NYSE:PFE) and Allergan (NYSE:AGN) and $103 billion consideration between Honeywell (NYSE:HON) and United Technologies (NYSE:UTX) top the charts. However, there are still several potential mega-deals which can materialize this year. Here are the ones you should keep an eye on:

Mondelez (NASDAQ:MDLZ) and Hershey (NYSE:HSY) - That's way too low

Source: simplywall.st

That's what Hershey's board of directors meant when they unanimously rejected Mondelez's $23 billion or $107 per share takeover bid. The merger between the second largest confectionery company in the world - Oreo maker Mondelez - and the fifth largest - Reeses Peanut Butter maker Hershey - will form the largest confectionery company in the world.

While the merger makes sense as Mondelez's global footprint is complementary to the Hershey's stronghold in the US. The most evident of those synergies include Mondelez gaining control of Cadbury brand in the US, while it already controls the international market and is paid a royalty by Hershey for the license in the US.

The stock is trading above the takeover offer of $107 per share which was 10% higher than the then market price of $97; however, the current price of $110.24 (at the time of writing) indicates that the market is clearly expecting a better offer from Mondelez.

Or even a competing bid from Nestle, which controls the global market of Kit Kat, a household name, and receives royalties from the US-license of the same, owned by Hershey. So far, the possibility of a better offer is not out of the window as industry insiders indicate the deal is still alive.

The deal-breakers: the biggest hurdle despite a sweetened offer would be getting a nod from the Hershey Trust - which controls over 80% voting rights and is known to be averse of merger deals on the grounds of protecting jobs in the local community; thus, keeping the company independent.

However, this time, unlike several attempts in the past from the likes of Wrigley, Mondelez has already provided an assurance of no job cuts and proposed the name of the merged entity to be Hershey which increases the likelihood of a deal.

Aetna (NYSE:AET) and Humana (NYSE:HUM) - Antitrust hurdles

Source: simplywall.st

If it materialized, Aetna's $37 billion takeover bid for Humana would be the largest deal in the history of the US insurance industry. However, getting approvals from state regulators is not the run of the mill paperwork of a usual merger - Aetna has got approvals from 17 states so far, out of the 20 it needs.

So much so that in an another mega merger between healthcare insurance providers, Anthem (NYSE:ANTM), which proposed a $48 billion bid to acquire rival Cigna (NYSE:CI), has found the regulatory headaches burdensome to an extent that the company is ready to back out.

On the other hand, Aetna appears committed, the company recently announced it would be selling billions of assets to get approvals from the anti-trust regulators. The market seems to have severely underestimated the company's efforts - shares of Humana closed at $179.98, well below the takeover price of approximately $230.

KKR (NYSE:KKR) and Harley-Davidson (NYSE:HOG) - Just rumors so far

Source: simplywall.st

In 1903, when Bill Harley and Arthur Walter Davidson came up with a single cylinder motorcycle using the latest innovation of that time - the gasoline engine, they would have hardly thought about what would, or could, become of it - the two-wheeled gas guzzlers remain to be a status symbol even in 2016.

Last week, on buyout rumors based on a report from financial news provider TheFly.com, company shares jumped nearly 20%. In the absence of any official announcement from either Harley-Davidson or the supposed acquirer - private equity and real estate investment firm KKR - the shares crashed over 12% in two trading sessions following the rumors hit the wire.

Harley-Davidson is facing headwind in the form of growing competition, which is exacerbated due to a stronger dollar, reflecting in its weaker sales and profit margins. This has brought down share prices to a level where its valuation appears quite attractive - trailing PE ratio of 12.7 and a nearly 30% discount from its free-cash-flow-value based on analysts' consensus cash flow estimates, making it a potential buyout target.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.