Many companies are sitting on a great deal of cash and when mixed with consolidation from maturing industries, we get buyouts and acquisitions. Recently, there have been a lot of billion dollar deals within a small time span. Among these are TD Ameritrade, where TD Bank plans to buy Scottrade. TD Ameritrade is an online broker for different securities and owns the popular trading platform – Think or Swim. The deal will be for $4 billion, with $2.7 billion led by TD Ameritrade for Scottrade’s brokerage operations and $1.3 billion in cash from TD bank for Scottrade’s banking operations. Passive investing has hurt the brokerage industry and the ones who are doing well are introducing their own securities or relying on niche markets like Interactive Brokers and algotraders. This deal will combine two huge companies within the sector leaving Fidelity, Merrill Edge, E*TRADE, Interactive Brokers, and Charles Schwab on their own.
Buyouts are not only happening in the financial sector, but in tobacco as well. British American Tobacco recently announced it will be buying Reynolds American. Reynolds American owns brand such as Camel, and the company may be able to fight off any threat of an antitrust thanks to recently making John Boehner part of the board, after stepping down as Speaker of the House. This acquisition was meant to keep British American Tobacco on top of technology. Philip Morris has been beating BAT in Japan with the introduction of the iQOS which has sold millions in the past couple years. The iQOS is not exactly an electronic cigarette, but something called a Marlboro HeatStick that heats up and reduces one’s exposure to harmful chemicals. BAT’s buyout of Reynolds will allow BAT to have access to a pipeline of products that include Vuse. The iQOS selling over $1 billion has led to British American Tobacco to not be left out of any other market.
Of course one buyout overshined the previous ones. AT&T reached a mega deal with Time Warner to buy them out for $85.4 billion. The telecommunications company would be buying the world’s largest media company. Time Warner CEO, Jeff Bewkes, will stay for a short interim period until AT&T chief Randall Stephenson leads both companies. AT&T has recently led big buyouts such as the recent buyout of DirecTV. AT&T isn’t the only telecommunications company eating smaller media companies up. Verizon has bought out Yahoo! & AOL mainly for its media assets and potential for online, mobile video advertisements. Verizon’s buyout of AOL, which includes the Huffington Post, was a risk that is paying off, but Yahoo is proving more difficult. After an offer was received, Yahoo released information of a major hack.
The dollar, stock buybacks and the overall markets are at an all time high. Investors are pressuring boards into returning high growth for each investment dollar which has led to big deals such as the ones we see now. The S&P500 is believed by some analysts to be overvalued with an average P/E above its historical one by a factor of approximately 33%.