The credit crisis continues to weave its damages throughout the market, with the world of mergers and acquisitions its latest victim. Many blockbuster deals, notably Waste Management’s proposed takeover of Republic Services, have fallen through, while others are being postponed due to an overall deficiency of available capital.
One major deal is the possible sale of Chrysler to GM, proposed earlier in the month. Private equity firm Cerberus Capital Management, which owns 80 percent of Chrysler, hopes to get out of the struggling automotive industry in the black, according to Reuters. Adding to the troubles is Chrysler’s existing $9 billion debt, which makes the auto maker increasingly unattractive to a GM buyout, and would likely have to be refinanced by government aid before a deal could go forward.
InBev’s proposed $52 billion takeover of Anheuser-Busch, announced in July, has also hit a number of speed bumps. The Belgian beverage company has faced difficulty in securing the loans needed to go through with the deal. Further complicating matters is that Modelo, a Mexican subsidiary of Anheuser-Busch and one of the company’s greatest attractions for InBev, is attempting to repurchase their parent company’s stake, thus breaking them free from the InBev-Anheuser-Busch deal.
While large M&A deals ($1 billion and more) such as these have been sufficiently altered due to the credit crisis, smaller deals ($500 million and less) are faring somewhat better, though have still suffered. According to Thomson Reuters data, large-cap deals are down 41 percent in the first three quarters of 2008, while small-cap deals are only down by 18 percent. With smaller deals, “you don’t need the huge high-yield financing and syndicated lending packages that the banks are just not willing to extend right now,” said Matthew Toole of Thomson Reuters.
Two deals that have outright failed in the wake of the credit crisis are Waste Management’s attempted $6.4 billion takeover of Republic Services, and United Technologies’s $2.64 billion purchase of Diebold, which fell apart earlier in the month and in September, respectively.